Home Forex Market News European Session – Sterling tumbles to 2-month low, yen strong on risk...

European Session – Sterling tumbles to 2-month low, yen strong on risk aversion

The main tone of currency markets today was generally risk off due to geopolitical events and caution ahead of the weekend.

The main news that hit risk sentiment was the approval of US air strikes by US President Obama against militants in Iraq.

Meanwhile other geopolitical events also kept risk aversion going, including Israel launching air strikes on the Gaza Strip today and fighting in eastern Ukraine.

Risk aversion drove the US dollar down against the euro and the yen, while the US benchmark 10-year treasury yield fell below 2.4%.

The weaker dollar helped the euro bounce after Thursday’s dip to 1.3336 following a dovish Mario Draghi. The euro tested the key 1.3400 level today, reaching as high as 1.3407. Meanwhile, helping lend support to the euro was data showing France’s production data was stronger than expected. France is the Eurozone’s second largest economy. Also Germany’s exports were higher-than-expected at 0.9% in June reversing the 1.1% decline in May. Focus will be on next week’s events which include Eurozone inflation and second quarter GDP.

Sterling fell to an eight-week low of 1.6788 against the dollar. The pound came under pressure after the UK announced a wider- than- expected trade deficit at 9.4 billion versus an 8.8 billion expected. Thursday’s Bank of England policy announcement had little impact but next week’s BoE inflation report will be closely watched.

The yen was strong as it gained on safe haven demand in a risk averse environment. The dollar fell to a 2-week low of 101.50 before attempting to test 102.00. Earlier in the day, the Bank of Japan held policy unchanged as widely expected.

The Australian dollar rebounded in the European session after touching as low as 0.9238 to rise to 0.9281. Better-than -expected trade data from China, Australia’s largest trading partner, was unable to help the aussie higher as risk aversion was the main driver of risk assets today.

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