EURUSD initially extended gains early into the European open to rise to a high before beginning its decent to within sight of a 16-month low. The euro took a tumble after Fitch ratings agency said the European Central Bank should do more to resolve the region’s debt crisis, should step up purchases of troubled government bonds in order to save Italy and prevent a “cataclysmic” euro collapse. This made nervous investors dump the single currency pushing EURUSD to a low of 1.2680. The euro clawed back some losses, recovering to 1.2731after Germany suggested it may add more funding to a permanent euro zone bailout fund. The focus now turns to the ECB policy meeting on Thursday. Rates are expected to remain at 1.0 percent.
GBPUSD slid from an early session high of 1.5486 down to 1.5364 after a report showed that the UK goods trade deficit rose to a higher-than-expected GBP 8.644 billion in November from an upwardly revised GBP 7.868bn in October. This reinforced concerns that the British economy is struggling to recover and may fall into a recession. The focus turns to the Bank of England policy meeting on Thursday.
USDJPY continued to trade in a range in the upper 76s since Monday. Implied volumes in USDJPY are at multi year lows. There was slight upturn to 77.03 late in the session. EURJPY broke out of its range and tumbled to 97.58 from an early high of 98.36, tracking the drop in EURUSD.
EURCAD fell further to a new 12-month low at 1.2905 from the session high of 1.2973.
Weak market sentiment and a falling euro resulted in the dollar strengthening to gain back some ground lost in the past two days. The dollar index which measures the greenback against a basket of six major currencies, rose to 81.265, up from 80.864 Tuesday.