Dollar rallies against majors

US Dollar:

The dollar saw initial weakness in yesterday’s UK morning trade as risk appetite opened the session higher. Then the greenback staged its come back with any losses made back and them some against both the pound and euro. Last night we had the FOMC release its decision on interest rates, and as expected they left the Fed funds rate at 0.25%. Furthermore, greenback gains were helped by a Moody’s revision in Spain outlook to nega¬tive, sending GBP/USD below $1.5730, EUR.USD below $1.3320 and USD/JPY above Y83.80. In commodity majors, USD strength took AUD al low as $0.9930, while USD/CAD rose to 1.0090.
Data 13.30: Core CPI m/m 0.1% from 0.0%. 14.00 TIC Long Term Purchases 82.3B from 81.0B.

Pound:

Yesterday started out so well for the pound as we saw cable rocket over the $1.59 handle and GBP/EUR hold firm around the 1.1850 level. This came after the consumer price index data was release which showed an unexpected spike upwards, missing the governments official target for the eleventh month in a row. Cable then started to decline as a rush back into the safe haven dollar was seen in the afternoon trading session. The news of a possible downgrade for Spain saw investors buy the dollar which hurt cable and saw a cent and a half drop for GBP/USD. There was also a report by a Fund manager at M & G—Jim Leaviss , that he expected the UK to conduct more quantitative easing – usually having a negative impact on the value of that country’s currency. The pounds position against the euro held steady, as even though the pound was sold off, the euro matched it in the ugly stakes as the euro also fell on the Spain and Belgian debt worry issue. Data 09.30: Claimant Count Change –2.9k from –3.7k. Unemployment Rate 0.2% from 0.0%.

Euro:

The euro did start the day on a positive footing yesterday, but as we saw in GBP/USD, the single currency ca-pitulated against the dollar and was sold off across the board. Two European countries took the limelight as debt worries soon took centre stage and the euro fell. Rating agency Moody’s placed Spain’s Aa1 sovereign rating on review for a possible downgrade. We also saw Standard and Poor’s threaten to downgrade Belgium over the failure of Flemings and Wallons to form a government. The yield spread on Belgium 10yr bonds has ballooned to 102 basis points over German bunds, raising fears of a funding squeeze next year. All bad news for the under fire euro as we saw EUR/USD give up nearly two cents to push the currency pair down to the $1.33 handle.
Data 10.00: Employment Change q/q 0.2% from 0.0%.

General:

• Last night the FTSE 100 index closed up 30.36 at 5,891.21, the highest level for two and a half years.
• The Dow Jones Industrial Average rose to its highest level since before Lehman Brothers bankruptcy in September 2008 as the Fed kept its plan to buy $600bn of Treasuries through June in a second round of quantitative easing. The index closed up 47.58—0.42% at 11,476.54.

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