Forex US Review – Dollar drops on Moody’s threat of U.S. downgrade

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The Euro extended gains in the US session to hit a fresh one-month high against the Dollar after a report that said Greece and Eurozone officials have reached a deal to cut debts and put in place a new three-year adjustment program for Greece that would involve increased external funding. Meanwhile continuing expectations that the ECB will likely raise interest rates by July also supported the Euro against a weaker Dollar that has been weighed down by weak data and expectations are worse for Friday’s most important data on non-farm payroll. Late in the session, Moody’s threatened to downgrade the US sovereign debt rating if the US does not increase its debt ceiling in order to avoid risk of default. EURUSD gained 186 pips from the open of Asian trading to the month high of 1.4512.

Sterling did not have a clear direction against the Dollar in US trading. GBPUSD first erased gains made earlier in the session after a purchasing managers’ survey showed UK construction activity grew more than expected last month. Then in the later part of the US session, Cable rebounded. Highs were 1.6387, lows at 1.6305. Against the Euro, the Pound hita four-week low, with EURGBP peaking at 0.8863. Euro was broadly stronger today, and Pound weakness was worsened by dovish comments from a UK policymaker which added weight to the view domestic interest rates will stay on hold for some time.

The Swiss Franc settled around its time high against the US Dollar just trading sideways. Weak US economic data pushed investors to the safe haven Swissy recently, which was boosted yesterday by increased retail sales in Switzerland. USDCHF traded between lows of 0.8401 and highs of 0.8442.

The Canadian dollar recovered losses made early in the session after the release of Canadian manufacturing PMI which came out lower than expected, suggesting a slowdown in growth activity and lower factory orders. However, the Loonie soon recovered when USDCAD dropped from a session high of 0.9808 to 0.9747. The Canadian Dollar is supported by expectations that the BoC will raise interest rates by September, after a dovish comments made yesterday by the bank governor.

Gold eased off its month-high of $1,550.23 reached yesterday, dropping to as low as $1,519.23 then rebounding. Initially gold dropped as investors were taking profits on long positions they were unwinding. But today has been one of those days when traders are not sure which direction to take as they are concerned about the over the overall health of the global economy and especially the US economy, which will release important non-farm payroll numbers on Friday. Perhaps traders are awaiting the data.