Euro surged after the leaders of Germany and France called for budget reforms and EU treaty changes that would impose sanctions to countries whose fiscal deficit falls below 3 percent of its gross domestic product. The agreement reached between French President Nicolas Sarkozy and German Chancellor Angela Merkel will be proposed at the EU Summit end of this week. Following the announcement, EURUSD jumped to a US session high of 1.3485, up 0.4 percent from the open of 1.3434. However this was short lived as euro soon fell to 1.3373. Investors took a profit and unwound their positions as many are still sceptic about any concrete solutions to be reached this week. What further pushed euro down across the board was a Financial Times report that indicated that Standard & Poor’s will put Germany, France and other triple-A-rated euro-zone countries on review for a potential downgrade.
The change in direction of the euro and risk appetite helped the US dollar shrug off losses. The dollar index which tracks the greenback against a basket of six major currencies, traded at 78.608, up from as low as 78.192 but little changed versus 78.609 Friday.
Sterling pared all gains made in the US session to fall back down from a high of 1.5716 to 1.5626. Until the S&P announcement, the pound held strong after it was lifted following better than expected service sector PMI data.
The dollar briefly reversed course against the Japanese yen after the S&P news but then continued to fall to 77.68. Earlier USDJPY peaked at 78.05. Meanwhile, euro tumbled against yen from 104.98 to 103.99.
The Canadian dollar fell sharply against the US dollar late in the North American session after Financial Times reported that Standard & Poor’s will put France and Germany on “creditwatch negative.” USDCAD rose to 1.0185 from 1.0117. Earlier in the day, the loonie had gained as much as 0.7 percent lifted by risk appetite and rising oil prices. Crude oil is Canada’s major export and so affects the currency.
Crude-oil gave back nearly all of its earlier gains towards the end of the New York session after the Financial Times report. Crude fell to US$100.23 versus the earlier high of $102.41.