The Euro fell against the Dollar losing almost 200 pips as it was knocked off its thee week high to touch a low of 1.4338. The Dollar rebounded since it has finally become over-sold and investors already discounted the fact that debt negotiations are at a deadlock for now, so they have taken the opportunity to book profits on short positions. In times of investors flee from risky currencies like the Euro and usually feel to the safer more liquid Dollar, which ironically even during a U.S. debt crisis, refuge is taken in the greenback. Meanwhile, Standard and Poor’s downgraded Greece’s credit rating today to two steps above default at CCC.
Sterling also suffered from risk aversion today against the Dollar. Cable fell far from a six-week high to drop to 1.6311 in New York trading. Added to risk aversion, Sterling also suffered due to disappointing UK factory orders data released today which reminded investors how the British economy has a long recovery ahead.
The Dollar moved off four-month lows against the Yen to open New York at 77.75 and climb to 78.15 as investors who were short USDJPY took profits and began buying up the Dollar while it was cheap. Yen’s recent strength has alarmed Japanese finance officials, prompting BoJ governor Shirakawa to threaten an intervention in the markets. Some say his verbal intervention has helped prevent sharp moves in the Yen. However, if the U.S. does not reach a debt deal soon, Yen’s further appreciation may continue. A former top Japanese Finance Ministry official, Eisuke Sakakibara,said today that Yen could reach 75.00 against the Dollar.
The Canadian Dollar weakened against the rebounding U.S. Dollar. USDCAD moved off three and half year lows to jump some 90 pips to 0.9415 from the session open of 0.9504. As the political wrangling continues to delay a debt plan and an agreement to raise the debt ceiling in the U.S., this takes a toll on the loonie mainly because the U.S. is a major trading partner of Canada, so any problems in the American economy will flow over to Canada. There is not enough debt in the Canadian Dollar market to make the currency a long-term safe haven asset.
Gold initially hit a new record high early in the U.S. session, peaking at $1,628.31due to Dollar weakness and the ongoing stalemate in U.S. debt talks. However, as the Dollar rebounded, the precious metal fell off its highs down to $1,608.78 also due to profit-taking opportunities from investors long on gold.