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    European Session – Yen and gold rise on risk aversion, oil retreats from $32

    There was mild risk aversion in the currency markets today due to the renewed weakness in oil prices. Overall the drop in commodities affected the oil-linked currencies, like the Canadian dollar which came under pressure after oil slipped from a two-week high of $32. Flows to safe havens helped lift gold, which was a strong performer today, rising to $1107.

    The euro was supported by the risk averse environment as the currency has tended to be used as a safe haven. The euro rose against the dollar to regain the $1.08 handle. Disappointing economic data out of Europe today was ignored. Germany’s January IFO Business Climate survey fell for a second month running, reaching 107.3 in January, well below expectations for a reading of 108.4 and was a decline from December’s 108.6.

    Other data out today consisted of the UK CBI survey of industrial orders expectations. The January index provided a weaker than expected reading by falling to -15 versus a prior -10 and a-7 expected. The weaker picture of the UK manufacturing sector pushed sterling lower after the data to $1.4222 against the dollar. The main risk for the pound lies in this week’s fourth quarter UK GDP.

    In other currencies, the Australian dollar failed to stay above the key $0.70 level versus the greenback and fell back to $0.6966.

    The dollar came under slight pressure against the safe haven yen. After trading as high as 118.84 yen in Asia, the dollar slid to as low as 118.16 yen in Europe. Wednesday’s Fed meeting presents some near term risk for the dollar. While no rate increase is expected this week, markets will look for the statement and outlook for the US economy from the Fed for any hints of a March rate hike.

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