Euro surged around 220 pips against the dollar late in the European session after an announcement by major central banks that they are taking coordinated action to increase liquidity in the financial system as the European debt crisis continues to roil the markets. Central banks from developed nations agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points to ease strains on the supply of credit to households and businesses and to help boost economic activity. EURUSD jumped to 1.3515 from 1.3298 where it trade before the news. The euro was also boosted earlier in the day after China after China announced it is reducing its central bank reserve requirement by 50 basis points. The euro has gained 2 percent during the European trading session today. Better than expected economic data from Europe’s largest economy, Germany, also helped lift the euro. German employment and retail sales improved in November. The focus now turns to the European finance ministers meeting in Brussels today where they are expected to reach a deal to expand the EFSF rescue fund.
Sterling has risen 1.5 percent against the dollar in the Europe session, hitting a high of 1.5757 from an early session low of 1.5524. The pound is benefitting from the increase in risk appetite and a broadly weaker dollar due to the coordinated central bank action to increase liquidity and also due to China’s surprise move on reducing its reserve requirement ratio.
The Swiss franc fell against the dollar and the euro after a report by the Swiss KOF economic research institute showed that the economic index fell to its worst level since August 2009. EURCHF jumped around 15 pips after the KOF data to a session high of 1.2285 while USDCHF peaked at 0.9250 by 11:00 GMT. However, the dollar tumbled 152 pips against the franc after major global central banks announcement on new liquidity measures which resulted in weakening the dollar across the board.
Against the Japanese yen, the dollar plunged 1.1 percent in the session to fall to 77.28 from 78.14. EURJPY gained 1.2 percent to 104.56 from 103.32.
Gold prices soared $45 to a session high of $1,745.48 from a session low of $1,700.47 on the central bank news. Dollar and gold have an inverse relationship since gold is priced in US dollars.
Oil prices turned higher in the European trading session, gaining as much as 2.6 percent to break pass the key $100 a barrel level, hitting $101.57. This helped strengthen the commodity-linked Canadian dollar since Canada is a major oil exporter. USDCAD fell to 1.0122 from 1.0362.