Euro made a strong recovery in the US trading session to recover earlier European losses. Investors shrugged off previous session negative news on weak German sentiment data and Moody’s warning to France it may lose its triple-A credit rating. In the New York session, positive US data on whole sale prices helped lift sentiment. Also news of better-than-expected US bank earnings pushed North American stocks higher as well as commodities, turning investors back to risk and back to the euro. Buying on the dip lifted EURUSD from a U.S. session low of 1.3652 to a high 1.3816. Meanwhile a report by The Guardian newspaper reported that France and Germany have reached an agreement to boost the euro zone’s rescue fund, (EFSF) to 2 trillion euros compared to the current 440 billion. This accelerated the rise in euro.
GBPUSD extended its fall well into the NY session, touching as low as 1.5630 from the session open of 1.5738. The British pound fell after UK annual inflation data topped 5 percent, raising concerns about stagflation in the near term and driving some investors to build bearish bets against sterling. Cable soon rebounded to 1.5772 in later NY trading as bargain hunters bought the pound and risk appetite built up.
The Canadian dollar strengthened against its U.S. counterpart as investors were less concerned that the US economy was heading into a recession following better than expected US production price data. North American stocks rose higher as well as commodity prices, which help lift the commodity-linked Canadian dollar. Crude oil is Canada’s major export. During the US trading session, better-than-expected US bank earnings overshadowed worries about the crisis in Europe, lifting sentiment and risk appetite. USDCAD fell to 1.0110 from the New York open of 1.0233.
The Australian dollar strengthened against the US dollar as stocks and commodities rose, damping demand for the safety of the greenback as investors turned to higher-yielding assets like the aussie. Higher-yielding currencies tend to perform well in a risk-on environment. AUDUSD rose to 1.0325 from the New York open of 1.0158.
USDJPY rose after bottoming at 76.61in the previous session. Dollar gained ground against the yen in New York trading to rise to 76.90 as traders were concerned to let yen strengthen too much for fear of a BoJ intervention. EURJPY rose to a session high of 106.20 from a low 104.76 on improved risk sentiment as euro gained against most counterparts in the US session, recovering from a decline earlier in the day following weak German sentiment data and the threat of France losing its AAA rating.