US Dollar: Asian stock markets are falling on the back of US and European losses posted in equity markets on Friday as fears for Europe’s ability to dig itself out of a mountain of public debt while trying to keep economic growth going. Global growth prospects dimmed Friday after new data raised the threat of deflation in Spain and concerns mounted over whether austerity measures in debt laden European countries would undermine an eco¬nomic recovery. While European banks may be in the most peril right now, US businesses are still shaky, and housing and labor markets may have stopped worsening, but have yet to bounce back. Such recent market moves have reflected a push out of riskier assets and resulted in a huge swing to the dollar in currency markets. We have now seen the dollar hit a four year high posted against the euro to hit $ 12234, and against the pound there was also a positive move higher as the greenback hit $1.4250. Economic reports due this week will detail April consumer and wholesale inflation as well as housing starts last month. Data 13.30: Empire State Manu¬facturing Index expected 30.1 from 31.9. 14.00: Tic Long Term Purchases expected 50.5B from 47.1B.
Pound: Fears focus on the idea that austerity measures implemented across the eurozone and the UK may reverse the economic recovery that was just beginning to take hold. There remains a real concern that as a re-sult of the European bailout package announced last week, growth prospects will fall into a black hole, as gov-ernments across the eurozone slash spending and increase taxes in order to rein back their exploding deficits. The pound seems to have been grouped into the same bag as the euro as a currency global investors do not want to hold. The run to safer assets has been clearly seen in the value of cable, with the pound hitting a year low at $1.4250 on growing concerns about the UK’s finances and the view that euros weakness may drag ster¬ling down more. In the UK, Bank of England Governor Mervyn King will most probably have to write another letter to the government explaining why the annual rate of inflation has remained above its 2.0% target, if econo¬mists forecast prove accurate in the week ahead. No major data.
Euro: The euro posted massive losses against the dollar and yen and also gave up some ground on sterling as the euros outlook looks especially precarious given that technical pressure could pave the way to speculative selling. The euro fell to more than a four year low against the dollar, sliding to $1.2234 as persistent concerns over eurozone debt and stop loss sell orders below $1.23 pummelled the single currency. Investors are ex¬pressing increased nervousness about the European Union’s $1 trillion aid package announced a week ago. Criticism centres on the European Central Bank’s decision to start buying sovereign bonds in an effort to boost market liquidity and limit contagion from Greece’s debt crises. Investors also worry that austerity measures to reduce budget deficits will stir further civil unrest. Growing unease over fiscal austerity and what it means for growth is being reflected in exchange rate weakness for the euro. Some key investment banks downgraded their forecasts for the common currency, with UBS revising its year-end 2010 target to $1.1500 from $1.3000 and the end-2011 target to $1.1000 from $1.25. JP Morgan lowered its target for the euro to $1.25 for the sec¬ond and third quarter period and $1.20 for the fourth quarter. No major data.
General:
• In Japan, the euro’s weakness was taking its toll on exporter stocks. Investors seem shocked as they had thought that the worst was over for the euro.
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| GBP/USD | 1.4403 |
| GBP/EUR | 1.1708 |
| EUR/USD | 1.2305 |
| GBP/JPY | 132.50 |
| GBP/AUD | 1.6407 |
| GBP/NZD | 2.0527 |
| GBP/ZAR | 10.9153 |
| GBP/CHF | 1.6383 |
| GBP/CAD | 1.4953 |
| GBP/SGD | 2.0061 |
| GBP/THB | 46.67 |
| GBP/HKD | 11.2176 red-down; blue-up (snap shot) |
These rates are for indication purposes only
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John Paul Georgiou
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\n john.georgiou@voltrexfx.com