February 18th, 2010 by Toby
After a recent fall against the Euro, the dollar has regained its strength following renewed confidence surrounding the levels of recovery being experienced in the US economy. By way of comparison against the Euro, the divergence between the two currencies (USD/EUR) in terms of economic growth has seen the Euro fall against the dollar once again. Further boost was given to the Greenback as China started to slow its huge growth. In doing so, it will reduce its voracious appetite for commodities which often strengthens the dollar as the Greenback becomes more appealing to investors in comparison to low dollarpriced commodities, such as crude oil. Further news is out today regarding the health of the US, American unemployment claims are released at 13:30GMT. A reduction in unemployment claims will most likely strengthen the Dollar as consumer spending is highly correlated with labour conditions. At market open the Dollar is up against the Euro by 0.31% and up against Sterling by 0.29%.
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Sterling rebounded late yesterday afternoon against the Euro moving back into the 1.15 area on the back of positive BoE minutes released earlier in the day. The BoE was however accused by leading city economists last night of sending mixed messages to the market. The minutes which revealed that all nine members voted unanimously for no change in QE or interest rates seemed to contradict comments made last week by the Governor who said â€œit is far too soon to conclude that no more purchases will be neededâ€ (QE). This change in tone amongst the minutes helped support sterling yesterday against a shaky looking Euro. The pound however, is continuing to weaken against an in demand USD. This morning sees the release of public sector borrowing data expected to be sharply down at â€“2.4B (as the government is pressured to reduce spending) and industrial order expectations (manufacturing orders) due at 11am. Tomorrow sees higher impact data with key UK retail sales data due, which if released weaker than expected could hurt sterling.
Despite a well documented rally following a readjustment of short positions by many traders and hedge funds, the Euro was subject to further depreciation as problems surrounding Greece refuse to come to a conclusion. Even though the sharp falls in the Euro were considered slightly hasty, the general market sentiment remains negative as Spain, Portugal and now Italy may be afflicted by the same problems as Greece. Earlier faith in the Euro saw investors leave the Dollar in search of more risk by way of the Euro, however this has now been reversed and strong US data leads the way in the USD/EUR divergence. News of Greece having used complex financial instruments, derivatives, has added further pressure to the Euro as it is unclear to many the exact extent of Greeceâ€™s financial woes. Furthermore, the use of these derivatives by Greece, whilst legal, served to hide financial troubles which to all intents and purposes is highly deceptive and damaging to the Euro Zone health.
Quote of the Day
“It is better to fail in originality than to succeed in imitation.” – Herman Melville
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