The Euro retraced from its big drop against the Dollar in the European session, hurt by soaring Italian bond yields today which raised concerns of a debt contagion to other European indebted countries. Italy is a much larger economy than Greece, and a bailout for them is close to impossible. This concern will likely keep Euro under pressure even against a Dollar hurt by its own U.S. debt issues. The difference with the E.U. is that the markets are more confident the U.S. will likely reach some sort of a resolve on the debt issue even if it is by the “eleventh hour”. Whereas Europe is still in danger of debt spreading across the peripherals. EURUSD was due for a correction from the drop, moving up from the low of 1.4253 to climb to 1.4326, also helped by buying on dips.
Sterling traded sideways against the Dollar most of the session with a slight upward movement from the open of 1.6321 to a high of 1.6345. Despite poor U.K. economic data, Cable remains supported from a further drop at the moment since between the G-3 currencies it seems the least ugly versus the Euro and the Dollar, both dogged by their debt issues. EURGBP retraced from a prior sharp drop, due for a correction from a 0.8743 low to a 0.8765 high in the U.S session.
USDJPY retraced after a fall in the European session which led the Dollar down close towards the four-month low reached against the Yen this week. After enjoying a boost given by a drop in U.S. jobless claims data which lifted USDJPY to 77.89, the greenback turned back down to 77.74 as voting in the U.S. House of Representatives got underway to pass a deficit plan . Yen is expected to advance further until a deal is agreed on to raise the U.S. debt ceiling, despite calls from BOJ governor warning against Yen appreciation which will hurt Japan’s exports However, investors prefer the less risky Yen versus the Dollar at the moment. .
The Canadian Dollar began the U.S. session stronger than the greenback following a drop in U.S. jobless claims. Good news south of the border is also good for Canada since the U.S. is a major trading partner. However, the loonie’s gains were limited as mounting concerns about a U.S. debt default is causing market jitters that dragged down oil prices. The Canadian Dollar is a commodity-linked currency and usually tracks movement sin crude oil, being an oil exporter itself. USDCAD rose to a high of 0.9508 from a low reached after U.S. jobless claims at 0.9467. If political wrangling continues to delay a U.S. debt plan, this will affect the loonie negatively. Some of the USD boost is attributed to short covering.
USDCHF has trading sideways in a range for the past three days, hovering close to the all time low of 0.7989 and high of 0.8033. The Swiss Franc is holding firm as a safe haven currency during these times of crisis, where debt issues reign on both sides of the Atlantic, in the U.S and Europe.
Gold initially fell early in New York trading following a report that showed U.S. jobless claims dropped last week, which boosted risk appetite and the Dollar for a bit. Gold and USD have an inverse price relationship. Spot gold fell to a session low of $1,603.03 but soon rebounded to $1,616.61. The focus is on the vote in U.S. Congress tonight to pass a deficit bill.