The euro rose slightly against the dollar but gains were limited despite the ECB’s pledge to buy bonds in the secondary market in order to ease the risk of contagion. Market sentiment is still very fragile, especially after the Asian session when Asian bourses took a nose dive due to fears of a recession after the United States credit rating was downgraded. EURUSD opened the session at 1.4230 and hit a high of 1.4284.
Cable was on the upside for most of the session, except for a brief 60pips drop after data showed UK manufacturing output fell unexpectedly in June and the trade deficit widened, adding evidence of the sluggish UK economic recovery. June factory production declined 0.4 versus a 1.8 rise in May and a forecast of a rise of 0.2 percent. However, the Pound rebounded to continue to advance against the dollar to hit a session high of 1.6407 from the open of 1.6317. Sterling would have fallen under other circumstances, but due to external factors that are more significant to investors, such as the U.S. credit rating downgrade and euro zone debt concerns, investors looked for alternative currencies to the euro and dollar and chose the British Pound.
The euro and the dollar extended its declines against the Swiss franc to hit fresh historic lows as flight to safety pushed investors to the safe haven Swiss currency.Markets have become deeply risk-averse in recent days after Friday’s downgrade of U.S. sovereign debt by Standard and Poor’s, as well as persistent debt concerns in the euro zone fuelled concerns about a global slowdown and are making markets jittery. USDCHF touched the new record low of 0.7359 and EURCHF at 1.0488.
The dollar extended losses versus the yen in the European trading session, breaking below levels at which Japanese authorities stepped into the market last week to sell the yen for dollars to tame the Japanese currency’s excessive strength. USDJPY reached a low of 76.96 before retracing to 77.32. When asked of his views of the yen accelerating gains today, Japanese Finance Minister Yoshihiko Noda said he was prepared to respond flexibly to market moves after the U.S. Federal Reserve announces a monetary policy decision later in the day.