The sentiment deteriorated further today, and pessimism returned to dominate the market as we can see the U.S. dollar gained the most against other major currencies, as investors hold more of the low yielding currency in order to avert as much risk as possible.
The U.S. dollar gained positive momentum and climbed to the highest record seen in six months, as investors' appetite for risk eased after the worsening debt crisis in Europe led the International Monetary Fund (IMF) to launch a 6-month liquidity line in order to aid countries that may be at risk from the escalating debt crisis.
Rising concerns and debt woes returned to control markets, as we can see cautious trading across the board, especially after the downbeat fundamentals from Europe earlier today, which showed that the manufacturing sectors contracted in Germany and the euro-area region as a whole, which raised jitters that the euro zone will slip back into recession most probably in 2012.
Moreover, the euro extended the losses incurred earlier today after Germany was not able to sell as much bonds as planned, which prompted concerns that the debt crisis started to threaten the largest economy in the euro zone, especially after the Bundesbank was forced to buy more than half of the amount in order to ensure the success of the auction.
Investors are concerned over European yields, where the debt crisis is spreading in terms of rising yields on European indebted-nations' bonds; however, Germany due to the low yields offered was not able to sell 6.0 billion euros of bonds as projected, while the Bundesbank had to buy as much as 3.644 billion euros to ensure that the auction didn't fail.
The European commission also proposed today that the European Union should review draft budgets of the euro zone nations by mid-October every year; however, the proposal is still under discussion, yet it backs calls for a political union made by the Chancellor Merkel and the President Sarkozy, and now the European Commission considers this proposal as a first step into the issuance of European joint bonds in the future.
Fitch, the rating agency, renewed warning to France today, and explained that the deepening debt crisis and the global economic downturn could pressure the French budget more and also could cost the nation its triple-A top debt rating.
The U.S. income report confirmed that the personal spending levels slowed, despite the slight expansion seen in the personal income, which indicates that consumers' confidence in the world's largest economy is still at low levels.
The U.S. dollar index (USDIX) opened the session today at 78.27, and recorded the highest at 78.88 and the lowest at 78.16, and is trading in the moment at 78.79.
The EUR/USD pair slipped after starting the session at $1.3503 to record the lowest at $1.3372. The pair is currently hovering around $1.3390, and reached the highest at $1.3530.