US Dollar: In the FX markets the dollar remains well bid as risk sentiment decreases and funds flow to the safe haven greenback. It seems equity market sentiment will remain the dominant driver of currencies in the short term. Not only are investors trying to figure out to what extent Europe’s debt problems will affect the global economy, but worries are mounting about a slowing in Chinese growth. This week has seen EUR/USD trade mostly sideways but the greenback is definitely in the driving seat against an under fire single currency. The euro will struggle to breach resistance around $1.2010 and remains susceptible to test support around $1.1826. Confidence has plummeted to extreme lows and it will be several months before appetite for risk trades return. The dollar did post major gains against sterling yesterday as the Fitch credit ratings report hurt the value of the pound and cable dropped over a cent to $1.4347. The dollar did however lose ground to the growth-sensitive Australian, Canadian and New Zealand dollars. That group of currencies was bolstered by expectations the Reserve Bank of New Zealand could soon join the Bank of Canada in raising interest rates.
Data 19.00: Beige Book. Speakers: 15.00 & 21.00 Bernanke.
Pound: Sterling’s impressive run against the euro came to an abrupt halt yesterday as Fitch Credit ratings firmly threw a spanner in the works. Fitch ratings said in a special report that following an unprecedented economic and financial shock, the scale of the United Kingdom’s AAA/stable outlook fiscal challenge is formidable and warrants a strong medium term consolidation strategy—including a faster pace of deficit reduction than set out in the April 2010 Budget. Its also said the rise in public debt ratios since 2008 is faster than any other AAA rated sovereign and the primary balance adjustment required to stabilise debt is amongst the highest of advanced countries. All pretty damming which inevitably took its toll on the strength of the UK currency. Sterling lost over a cent on the euro to fall from 1.2132 down to just below the 1.20 level, and nearly a cent and a half was given up against the dollar as we tested an intra-day low of $1.4347. The UK governments attention on the fiscal situation should support the pound in the longer run, by lowering the risk premium on UK government assets, but over the next few months cuts both ways for the currency. Data 09.30: Trade Balance expected –7.0B from –7.5B
Euro: The euro managed to stream loses posted against the dollar yesterday but more pressure kept coming on the single currency in the form of news Hungary and Bulgaria have now joined the list of European countries struggling to pay off their huge debt levels. This comes on the back of investors continuing to move money from Greek and Italian debt and Greek and Portuguese equities and into other currencies. The deterioration in senti¬ment is being driven less by short term news flows and more by a fundamental reassessment of the long-term outlook for European markets. At the same time, Spanish government workers began a strike to protest auster¬ity measures that will cut individual salaries for public workers—something many other countries will have to get use to this summer. The euro fell to an all time low against the Swiss franc but posted some gains against the dollar in choppy trading. Against sterling there was some good news as the pound took a hit on the back of a warning from Fitch Credit ratings as EUR/GBP rallied to 0.8334.
No major data.
General:
• Gold rallied $1.30 a troy ounce as gold hit $1,236.10 as we saw the flight to safety trade is alive and well.
• Oil prices extended gains to $72.52/barrel after a weekly industry report showed demand for crude in-creased.
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| GBP/USD | 1.4478 |
| GBP/EUR | 1.2109 |
| EUR/USD | 1.1958 |
| GBP/JPY | 132.40 |
| GBP/AUD | 1.7530 |
| GBP/NZD | 2.1712 |
| GBP/ZAR | 11.1780 |
| GBP/CHF | 1.6675 |
| GBP/CAD | 1.5174 |
| GBP/SGD | 2.0491 |
| GBP/THB | 47.08 |
| GBP/HKD | 11.2881 red-down; blue-up (snap shot) |
These rates are for indication purposes
For more information or to get the latest spot rates contact:
John Paul Georgiou
Senior Foreign Exchange Broker
\n john.georgiou@voltrexfx.com