Forex U.S. Review – Renewed Europe debt concerns weigh euro, push gold up

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The euro fell across the board as huge losses were announced in the French banking sector, causing concern that the euro zone debt crisis will spread to the core economies now. Panic sentiment spilled over to the U.S. bourses and created a risk off environment in general as investors sold off euro. EURUSD lost as much as 225 pips in the North American session, dropping to 1.4159 from the 1.4380 open. The sharp drop in the euro was also due to an earlier scare of a possible downgrading of France’s AAA rating but all three ratings agencies later confirmed they kept the current top notch rating.

Sterling fell to a three week low against the dollar, weakened by a Bank of England quarterly inflation report saying the outlook for growth in the U.K. economy has weakened and the forecast is for inflation to fall below its target in the medium term, and that the economy cannot support a tighter monetary policy yet. GBPUSD fell to a session low of 1.6121 from the 1.6250 open price.

The Swiss franc moved well off its record high that was reached against the dollar yesterday. After a pessimistic FOMC statement yesterday and the Fed announcing it kept interest rates unchanged, acknowledging a slowdown in the U.S. economy, this caused fears of a recession, and investors fled to the safe haven Swiss currency. However, the Swiss National Bank was not happy with a persistent strong franc that is harming exports so they intervened to weaken the Swissy by deciding to expand measures to counter the currency’s strength by increasing the supply of liquidity to the money market and expanding the banks’ sight deposits

Yen initially gained strength against the dollar early in the session, leading USDJPY to extend its decline to 76.33 as investors dumped the dollar after fears of a global recession grew following the U.S. Fed dovish statement and not coming up with some rescue plan for the slowing U.S. economy. A dollar sell off ensued as investors turned to the perceived safe haven yen for fear of a U.S. and global recession coming. USDJPY soon rebounded to 76.85 by the end of the session due to dip-buying and fear of letting yen gain too much strength as that would prompt a Bank of Japan intervention like last week.

The Canadian dollar erased most of yesterday’s gain against the U.S. dollar, which was the biggest in more than a year. Yesterday the loonie strengthened after the U.S. Federal Reserve said it will keep its hefty monetary policy stimulus for at least another two years. Stocks worldwide declined today on renewed concern the euro zone sovereign-debt crisis is getting worse and also due to mounting concerns the global economy is slowing. All this reduced demand for higher-yielding assets and commodity-linked currencies like the Canadian dollar. USDCAD climbed to 0.9951 from 0.9797.

Gold rose for a three straight sessions, peaking at $1797.17 in New York trading today, marking another record high to beat yesterday’s. Investors are feeling to safe haven metal as central banks in major countries are keeping interest rates low. Thus investors have nowhere else to look for higher yields and turn to gold to protect their wealth. On Tuesday the U.S. Fed announced its decision to keep its interest rate at a record low 0.25 percent.