Forex U.S. Review – Dollar weakens against most counterparts

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The euro rose to a three week high in the U.S. session against a broadly weaker dollar as the bearish sentiment underlying the greenback gathers pace with investors preferring to diversify away from the U.S reserve currency to higher yielding assets.EURUSD hit a high of 1.4517. Dollar dumping began as uncertainties surrounding the fundamental outlook of the U.S. economy dampened confidence behind the country’s recovery.

The British Pound performed well today against the dollar following on the back foot of the euro and rising alongside EURUSD. The pound did not gain due to its own merit but was considered a better investment against the U.S. dollar which is weakening against most if its counterparts. GBPUSD hit its highest level since May 3^rd peaking at 1.6589.

The dollar failed to make up for losses made in the prior European session after a big drop against the Swiss franc due to disappointment by markets after the Swiss National Bank did not follow through with its proposal of pegging franc to the euro or adopting a target rate. So investors are now betting that the Swiss currency will strengthen further with lack of measures to curb it, and hence shorted dollars instead. USDCHF 0.7885 and closed not far off at 0.7890, failing to get near the Asian session high of 0.8014.

USDJPY opened the North American session at 76.51 after falling in the prior session, and consolidated into a tight range between 76.40 and 76.59, not far from the record low reached a week ago. The Japan Obon holiday resulted in light volumes, but investors are still wary of buying dollar and prefer yen as a safe haven due to disappointment with the outcome of the Merkel Sarkozy meeting yesterday and rejection of a eurobond and proposal of a financial tax.

The Canadian dollar began the North American session by touching its highest level in more than a week against the U.S. dollar, helped by stronger oil prices as the Canadian dollar is a commodity-linked currency. USDCAD fell to as low as 0.9773 early in the session but then the loonie weakened, restrained by anxiety over the state of the global economy, especially the U.S. recovery leading USDCAD to climb to 0.9821. The U.S. is Canada’s major trading partner. A choppy stock market also made investors jittery as concerns grow after French and German plans for closer fiscal integration may be insufficient to stop the euro zone debt crisis from spreading further.

Gold prices rose for the second day today touching $1,794.52 in Europe, and hovered around that high in New York trading as investors are still nervous about the sovereign debt crisis in Europe after a disappointing Franco-German summit. Gold prices were also supported after U.S. economic data showed wholesale costs rose more than forecast in July, spurring demand for the precious metal as a hedge against inflation.