The US Dollar dropped to a three -year low against a basket of currencies today due to expectations that the US Fed will not be raising interest rates soon and will not tighten monetary policy soon. The news of Osama bin-Laden’s death did little to boost the greenback. EURUSD climbed to a 17-month high to hit 1.4901 in early US trading session. Investors shunned the lower yielding greenback for higher paying currencies abroad. Both the European Central Bank and the Bank of England have already raised interest rates, giving their respective currencies a boost. So far this year the Euro has gained 11 percent against the US Dollar and the Sterling has gained 7 percent. Some positive data from Europe came out today which indicated a strong growth in the Eurozone which gives room for further interest rate hikes, thereby helping buoy the Euro.
The Pound was trading quite high around the 17-month high against the US Dollar for most of the US trading session, hitting as high as 1.6721. Towards the end of the session Cable dropped down to 1.6644.The UK had a Bank Holiday on Monday, thereby markets were closed there as well as other parts of Europe, so trading was thin today. The release of PMI data in the US gave a lead over the Pound. The pair will likely find support at Thursday’s low of 1.6620.
The Canadian dollar eases from a 3-1/2 year high against its major counterpart, the greenback in Monday’s European and US trading sessions. After news that al-Qaeda leader Osama bin Laden was killed by US forces, oil prices began to decline. The Canadian Dollar traditionally has a correlation with commodity prices, especially with oil. During the US trading session, oil hit a new high of 114.80 then dropped down to 113.10. Meanwhile, Canada was holding general elections on Monday which were considered to be a close race between the candidates, making the Loonie volatile during this uncertainty in the Canadian economy. USDCAD was moving upward throughout the day to gain over 30 pips in US trading from a low of 0.9477 to a session high of 0.9513.
The Swiss Franc lost popularity during the US session as declining commodity prices, namely gold and oil, contributed to weakening the currency. The USDCHF pair had initially declined in the European session slowly edged up again to rise over 20 pips in the US session to reach a day high 0.8652
Gold prices were affected by the decline in the US Dollar, as the precious commodity has an inverse relationship with the US currency. If the Dollar strengthens, gold prices fall, keeping in mind that gold prices are quoted in US Dollar. Expectations that the US Fed will keep monetary policy loose led to the weakening of the US Dollar. Spot gold prices over 30 pips from a US session high of USD1574.88 to as low as 1542.28.