The Euro weakened against the Dollar for most of the session, falling to its lowest level in over four months to touch 1.3836 after a seven-day straight decline. Investor confidence is low at the moment as fears rise over contagion while Euro zone finance ministers are meeting to come up with a solution to deal with the debt crisis and prevent it from spreading to Italy. The Italian economy is much larger compared to the other debt ridden economies of Greece, Portugal and Ireland and there are concerns that a default by Italy will have a much larger impact for the EU since the European bailout fund does not have sufficient funds to bail out Italy. Towards the end of the session, news came out that France is in favour of holding a European summit soon to calm financial markets. The Euro slightly rebounded to 1.4022, also due to sovereign dip-buying.
Sterling fell across the board following lower than expected CPI data which indicated that inflation in the UK was lower than the previous month. CPI grew by only 4.2 percent in June despite expectations for it to remain unchanged at 4.5 percent. This adds to speculation that the BoE will not raise interest rates until 2012. Following release of the CPI data, Sterling plummeted by 73 pips against the Dollar within a minute, with GBPUSD touching as low as 1.5779 from the session open of 1.5852. EURGBP pared earlier losses and rose from a pre-news low of 0.8748 to a session high of 0.8838.
The Swiss Franc continued to appreciate for a seventh straight day against the Euro, as EURCHF dropped almost 800 pips since July 4, to a new record low of 1.1551 reached in the European session today. Demand for the safe haven currency increased as the debt situation in the EU peripheral economies is uncertain until the EU-IMF reach a final agreement on debt a solution. Even then, investors fear contagion as Italy seems to be following Greece, Portugal and Ireland’s path to default. USDCHF also fell to 0.8312 from the open of 0.8388.
The Japanese Yen strengthened against the Dollar to its strongest level since the earthquake devastated Japan on March 11 and the G7 intervened jointly to halt the surging currency. USDJPY fell to 79.16 from the session open of 80.11. As long as Euro zone Finance ministers have yet to present a solution on dealing with peripheral debt, the Euro will fall against the Yen. EURJPY fell to its lowest level in almost four months, reaching 109.57 versus the open level of 111.85. The Yen was also given a boost after BoJ governor, Shirakawa, announced today in a press conference that Japan has limited exposure to the Greek debt crisis. The BoJ maintained its benchmark interest rates within the same range below 0.10 percent, and has a positive outlook on the Japanese economy’s growth.
Note: Daylight Saving Time in effect for GMT