Forex US Review – Euro recovers on hopes new ECB measures will help debt crisis

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EURUSD dipped to as low as 1.3240 early into the start of New York trading due to the disappointment of the ECB keeping rates unchanged. However, the euro soon recovered and climbed to a session high of 1.3448 as Trichet announced that the ECB has decided on new liquidity measures to support the euro zone’s ailing banks through a new covered bond purchase program totalling 40 billion euros. Covered bonds are backed by assets such as mortgages and public sector loans and perceived as safe and high-quality. Buying them could encourage further lending. The ECB, which kept interest rates on hold at 1.5 percent, also threw another lifeline to commercial banks by renewing offers to lend them 12-month funding in two operations, this month and in December.

GBPUSD fell to its lowest in 14 months after the Bank of England’s monetary policy committee voted expand quantitative easing by purchasing 75 billion pounds more in assets to support the struggling British economy. Quantitative easing weakens sterling because as a result of the Bank of England’s bond buying program, it effectively floods the system with more pounds.Cable bounced off the low of 1.5267 to climb to 1.5454 lifted by bargain- buying.

USDCHF hit a six-month high in early US session trading to 0.9314 as the dollar was lifted after the ECB announced rates were unchanged. Also US economic data showed jobless claims had fallen last week, giving optimism that the labour market is picking up momentum. Investors are now focusing on Friday’s U.S. non-farm payrolls report for September, which is expected to show 60,000 new jobs created and an unemployment rate of 9.1 percent.

The Canadian dollar weakened against its US counterpart after the European Central Bank announced it kept interest rates on hold. This disappointed investors who are nervous about the European debt crisis and were hoping for a rate cut in order to stimulate growth in the region. Risk aversion pushed investors into the safety of the liquid US dollar, lifting USDCAD to a session high of 1.0476 from the US session open price of 1.0413. The loonie managed to pare some losses and recovered after crude oil rose over $3 a barrel to US$ 82.87, lifting the commodity price-sensitive Canadian dollar. Canada is a major oil producer.

USDJPY opened the US session at 76.65 and rose to a high of 76.83 after the ECB announcement that rates remained at 1.5 percent and disappointed investors who preferred a rate cut. As a result of renewed concerns of the euro zone debt crisis, investors turned to the safety of the US dollar which is more liquid.