The Euro advanced against the Dollar for most of the U.S. session as investors expect a new bailout framework for Greece to be agreed at the EU leaders summit on Thursday. However, despite this being the first real efforts to reduce Greece’s debt burden, markets are still being cautious since Spain and Italy are still in danger of default as well. Meanwhile, the Euro was also lifted as risk appetite picked up due to signs of progress on a U.S. budget deal. EURUSD initially retraced from the previous session high and subsequently rose again to a U.S. session high of 1.4233 from the low of 1.4171.
Sterling rose against the Dollar on the resurgence of risk appetite, rising from the low of 1.6112 to 1.6166. An increase in risk tolerance began after group of bipartisan U.S. senators, dubbed the “Gang of Six,” presented a new plan late on Tuesday that could revive stalled U.S. debt talks and avert a default by the world’s biggest economy. President Obama indicated he supported the plan, thereby increasing investor confidence.
The Yen gained against the Dollar, not so much due to its own merit but due to Dollar movement being affected by U.S. related fundamentals, regarding the U.S. debt. While positive news on U.S. debt discussions is good for the Dollar, it’s also likely to boost risk appetite, which would largely negate any positive Dollar reaction, as investors are more confident in buying riskier and higher yielding assets than the greenback. USDJPY fell from a session high of 78.93 down to 78.70.
Swiss Franc slightly edged higher than the Dollar due to some safe haven buying by investors who are playing it safe ahead of the EU leaders summit tomorrow. Uncertainty over what will come out of the meeting and whether a Greek debt deal will be reached turned some investors to hedge against any risks. USDCHF was on a downtrend most of the session, from the open of 0.8199 down to a low of 0.8176. The Dollar very briefly spiked up to 0.8226 immediately after the crude oil inventories were released.
The Canadian dollar rose against its U.S. counterpart to its highest level in more than two months after the Bank of Canada moments after the U.S. trading session began. The loonie slightly retraced to then firm up again following the Bank of Canada policy meeting minutes which provided speculation the bank will raise its benchmark rate from 1 percent as soon as September amid quickening inflation. It forecasts that economic growth will speed up in the second half of this year after a second-quarter slump. USDCAD fell to a low of 0.9458 following the BoC report. The pair then fluctuated again as crude oil prices fell, thereby dragging down the Canadian Dollar as well which is a commodity linked currency.
Gold rose in U.S. trading hours after the previous session’s drop as investors focused on economic uncertainty despite progress in talks on raising the U.S. debt limit and ahead of a EU leaders summit aimed at resolving the Euro zone debt crisis. However, gold was due for a correction after reaching an all time high well above $1,600, thereby dropped in the prior session due to profit taking opportunities. Spot gold rose to $1,600.08 from the session low of $1,580.88.