Euro fell sharply against the dollar in the U.S. session as investors began to change their bets and now worry that Fed Chairman Ben Bernanke may not unveil any new stimulus for the U.S. economy at his speech on Friday in Jackson Hole, Wyoming where policy makers will be meeting. U.S. Treasuries sold off heavily and dollar rose to bring EURUSD down to a session low of 1.4389 from an early high of 1.4389 as investors preferred to put their money in the safe haven USD and away from risk like the euro.
Sterling dipped against the dollar after a surprise rise in U.S. durable goods orders in July, which helped reduce some dollar bearishness. In recent sessions investors had been betting on sterling instead of dollar and euro on the perception the UK is a safer investment destination given U.S. fiscal problems and the euro zone debt crisis. However, Pound strength could only be temporary as investors were eager to unwind long positions in cable since the U.K. economy is still fragile and low interest rates turn investors away. GBPUSD dropped to 1.6364 from the U.S. session open of 1.6510.
USDJPY opened the U.S. session at 76.51 but the yen soon weakened sharply against the dollar, pushing dollar/yen to a high of 77.06. Better than expected U.S. durable goods data helped lift the greenback today. Also , investors are uncertain about the outcome of the Jackson Hole summit on Friday and whether the Federal Reserve will signal new stimulus measures for the U.S. economy. Investors believe the dollar will have more upside if there is no QE3, than downside if there was QE3. So the prefer to buy the dollar rather than yen which is at risk of BOJ intervention to curb its strength.
The Canadian dollar made some gains against the U.S. dollar following the surprise jump in U.S. durable goods data. Positive news for the U.S. boosts Canada as the tow are major trading partners. USDCAD was little changed through compared to yesterday’s U.S. session, and has been trading pretty much in a range in the past few sessions, though it is narrowing as the Feral Reserve meeting in Jackson Hole is getting closer. If there is not QE3, the loonie is at risk of weakening.
Gold declined during all of the session, for their biggest one-day loss in over a year and a half, to lose over $95, falling from the session open of $1,845 to a low of $1,749. Technicals reveal that the precious was overbought so investors took the opportunity to unwind long positions and book profits, while the dollar rose bets a speech by Fed Chairman Ben Bernanke on Friday will not reveal any new measures on quantitative easing. Dollar and gold usually have an inverse relationship.