Foreign Currency News Updates

Euro:
It has arrived. It would appear that we have a solution for the Greek problems. European leaders meeting in Brussels endorsed a Franco-German proposal to assist Greece through a mix of International Monetary Fund and bilateral loans. No surprises that this news has seen the Euro jump half a percent on Sterling and 0.7% on the US dollar. It is not all good news however, the fact that a solution has been reached does not mean the Euro Zone is out of the woods by any means. IMF help was always a contentious issue and many other nations still have severe problems that have gone overlooked because of Greece stealing the limelight. Put simply, the Greek problem was not a hiccup in the single currency but revelation of a fundamental structural problem in fiscal policy in the Euro Zone. Masanobu Ishikawa, general manager of spot FX at Tokyo Forex & Ueda Harlow has suggested that the problems are so deep routed that an eventual Euro/Dollar parity is not out the question.

The success of the bailout will be closely watched as the on-again off-again nature for possible Greek aid has seriously dented investor confidence, hence a long-term outlook for further Euro declines.

US Dollar:
The dollar had a good day yesterday as unemployment claims came in lower than expected at 442,000 against market expectations of 452,000. Much focus surrounds the relationship between the US dollar and Asian currencies. There has been some disagreement between America and China over the strength of the Yuan and it appears that China may allow the Yuan to trade more freely in order to allow the Yuan to appreciate without any sudden adverse movements.

The dollar has moved down this morning after news of a euro bailout was announced. Further downward pressure on the dollar is off the back of Asian market optimism leading to the increased demand for oil. As such, investors have moved out of the dollar and into the euro and commodities as risk appetite returns. Interestingly, despite an agreement being reached on a strategy for Greece, many analysts are still bearish on the Euro, “We’re seeing a short-term relief rally in the euro after the agreement,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “This whole situation, even though a support mechanism is now in place, has rattled market confidence in the euro and that will take a long time to recover. The euro will likely fall back to $1.20 to $1.25 against the dollar over the next six to 12 months”, Hardman said.

Pound:
Sterling started the day off well yesterday against the Euro trading up to a high of 1.1236 after the release of strong UK retail sales data, up 2.1% against 0.8% forecast. The pound also touched above 1.50 against the USD before gradually falling throughout the day to the low end of 1.48, much in the same way against the Euro which saw the rate moved down to 1.1122. Moving on to this morning the pound has now moved further down into 1.10 against the Euro which has been helped by an EU agreement on assisting Greece’s fiscal mess. EU leaders said yesterday that Athens would receive coordinated bilateral loans from other euro zone countries and money from the International Monetary Fund (IMF) if required.

There is less demand for sterling in the medium term after Wednesday’s budget release and the looming election despite the short term boast seen from yesterday’s positive data. “The budget was unambitious in terms of fiscal reduction, they’ve made it clear this year is too early to rein in spending, that’s the backdrop that’s going to keep sterling weak.” said Chris Turner, currency analyst at ING in London.

Have a superb weekend, I’m off rock climbing and abseiling in the peak district, come on!

Quote of the Day
“The most wasted of all days is that on which one has not laughed.” – Nicolas-Sebastien Chamfort