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European Session – Euro surges to 1.17, yen gains on safe haven flows as equity rout intensifies

Last week’s sell-off in global equity markets intensified today as concerns grew over the health of the Chinese economy and the pace of its slowdown following poor domestic data recently. Adding to concerns was the yuan’s devaluation earlier this month. As the world’s second largest economy stutters, many investors are now lowering their expectations of a rate hike by the Federal Reserve in September.

Consequently, the US dollar underperformed today mainly against the euro and the yen but was up versus the Australian and Canadian dollars.

The Japanese currency was boosted by safe haven flows due to risk aversion in the markets. So the dollar was sold off versus the yen to fall below the key 120.00 yen level for the first time in three months to fall to 116.11 and had the largest one-day fall since 1998. The euro slid to 135.97 yen.

The euro surged against the dollar to its highest level since January to peak at 1.1713, gaining almost 3% on the day so far. Sterling rose against the dollar to a high of 1.5802, a two-month high.

Commodity-linked currencies were the hardest hit today. The Australian dollar tumbled versus its US counterpart, slipping to 0.7038, the lowest since 2009. The greenback rose against the Canadian loonie to 1.3288, a new eleven-year high. Oil prices tumbled to lows not seen since early 2009, to $37.74, as prices dipped below the key $40 a barrel for the first time since November 2008.

There were no economic data releases today so most of the market moves were driven by the equity market rout. However, upcoming US economic data this week will be important risk events for the greenback, especially second quarter GDP data out on Thursday.

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