The euro made up for losses in the US trading session by bouncing back from a four-week low against the U.S. dollar. Some positive developments in Europe helped improve investor sentiment. The troika (EU, ECB, and the IMF), approved the 8-billion-euro installment for Portugal’s bailout package. Also, Greek Prime Minister Lucas Papademos won a confidence vote so his new government can press ahead with implementing new austerity measures required by the EU. Meanwhile, Italy’s new Prime Minister Mario Monti formed a new cabinet today filled with technocrats not politicians. These developments have helped to calm market jitters. EURUSD rose to 1.3551 from the NY open of 1.3468.
The British pound fell versus the dollar after the Bank of England’s latest quarterly Inflation Report, which cut its forecast for U.K. growth and projected that inflation is likely to fall below the 2% annual target by 2013. The report warned that a failure by euro-zone authorities to rein in the region’s debt crisis would hit U.K. and global growth. Sterling remained weak all day and was trapped in a 1.5737-1.5815 range.
The Canadian dollar recovered from a one-month low against its U.S. counterpart after crude oil hit US$102 a barrel, the highest since June. Oil is Canada’s major export so this helped boost the commodity-linked loonie. This pressured USDCAD lower, falling to 1.0171 from 1.0270.
The yen remained strong against the dollar as USDJPY traded between a low of 76.90 and a high of 77.05 in the US session. The Bank of Japan cut its economic outlook today, citing the crisis in Europe and a slowdown in overseas economies along with the impact of a stronger yen. The BOJ kept its benchmark interest-rate target unchanged as expected.