US Dollar:
The Dollar was up against the Euro and Sterling this morning as risk sentiment was under pressure and investors continued to take their money out of the riskier Euro and Sterling and into the safe haven of the U.S Dollar. Riskier assets have been hit across the board this morning as concern that problems in Greece could extend to other Euro zone countries such as Portugal and Spain.
Sterling was down to 1.56 overnight while the Euro fell to a new low of 1.3650 and looks set to weaken further if current sentiment continues. The Dollar put more pressure on Sterling aside from risk issues as political uncertainty and concern over UK finances pushed GBP back against the Dollar again this morning. Risk is still a major factor in the market and if problems persist in the Euro zone will probably continue to be for the foreseeable future. “The risk aversion and concern over sovereign credit has replaced the euphoria that economies were coming out of the doldrums,” leading investors to the safety of the dollar and yen, said John McCarthy, manager of currency trading at ING Capital Markets in New York. “Risk is being sold off,” he said. GBP/USD 1.5622, EUR/USD 1.3712.
Pound:
Sterling is trading down across the board hurt partly by UK politics as fears over a “hung parliament” increased. A joint poll between the Sunday Times and ICM showed a reduction in the conservative lead of labour to less than 10 points increasing the chance of this happening. In more pessimism for the UK economy the telegraph released a survey on Saturday by the British chamber of commerce (BCC) that discovered the feeling amongst all sizes of business was gloomy. Companies with employees between 100 and 249 staff were even more pessimistic. Recent growth data (GDP) which came in at 0.1% has continued to put the chance of any strong recovery in to question. The BBC also provided their share of gloom on the UK economy by releasing an article yesterday headed “UK economy faces crisis warns former IMF economist”. The article highlighted that the UK should be seen in the same category of countries as Greece and Spain who are facing severe debt problems weakening the price of the Euro in recent weeks. There is no UK data due out today but don’t be fooled, Wednesday see’s the release of the Bank of England inflation report.
Euro:
The Euro was still down against the Dollar but steadied on Sterling as concern over finances in Greece and the possibility of problems spreading to other Euro zone nations continued to weigh heavily on the single currency. Traders continued to pull investments out of Europe and look to the safe haven Dollar as news remained downbeat on the state of Euro zone nations’ finances and fiscal debt issues there.
Rhetoric from the G-7 forum put further pressure on the Euro with sovereign debt a persistent concern in the region. In a report, UBS said: “Renewed volatility in financial markets, largely attributed to the eurozone’s debt worries, dominated the (G-7) agenda. But very little of substance materialized, and we expect (foreign exchange) markets to continue trading with a risk-averse tone for the foreseeable future.” “The markets are betting on a situation that I don’t think will happen, which is a more extreme situation of default or an economy leaving the euro area,” said Carlos Almeida Andrade, chief economist of Banco Esprito Santo in Lisbon.
The Euro is expected to decline further against the Dollar, possibly to 1.30, while concerns over UK finances and uncertainty in the U.K government have allowed even the weak Euro to make some short term gains on the U.K currency. GBP/EUR 1.1391, EUR/USD 1.3712.
Quote of the Day
“Selfishness is not living as one wishes to live, it is asking others to live as one wishes to live.” – Oscar Wilde
