Euro crippled by debt woes, dollar in recovery

Tom Tong26/Nov/2010Currency Updates

GBP

Sterling fell against the euro on Thursday with the single currency under pressure on concerns that Ireland’s debt crisis may spread, while the pound held steady after briefly falling to a one-month low versus the dollar.

Liquidity was thin due to the US Thanksgiving holiday, exacerbating market moves, traders said.

Analysts said parliamentary testimony from Bank of England Governor Mervyn King and other policymakers was relatively balanced and gave little indication about monetary policy going forward. “The overall tone of the comments … maintain the impression that the Bank of England remains perched on the monetary policy fence and is unsure when it will finally come down and on which side,” said Howard Archer, chief UK economist at Global Insight.

BoE policymakers were split three ways again in November, with the majority standing ready to move policy in either direction. Dissenters Adam Posen, who wanted more easing, and Andrew Sentance, who voted for a rate rise, advocated their respective stances on Thursday.

EUR

The euro hovered near a two-month low against a broadly recovering dollar on Friday as a relentless rise in Eurozone countries’ bond yields fanned worries over their debt financing.

The euro fell to a two-month low on Friday, with Europe’s fiscal problems looking more likely to spread than be solved in the near term, while the looming year-end kept many equity investors eager to take profits, weighing on Asian stock markets.

Major European stock markets fell, with the FTSEurofirst 300 opening down 0.5% in early trade and London’s FTSE 100 down 0.7%. U.S. stock index futures SPc1 were down 0.4%.

Caution ruled in financial markets, with thinning volumes and pockets of risk, especially so with North Korea’s sabre rattling ahead of the South’s military exercises with the United States this weekend, driving more stock investors to take profits on the year’s winning sectors in Asia.

The Australian dollar slid after the head of the country’s central bank said interest rates were about right for the near term, extinguishing speculation that the currency’s yield advantage would get a policy boost in the next few months.

USD

The dollar rose to a two-month high against a basket of currencies on Thursday as the euro came under selling pressure versus the greenback on increasing concerns over the Eurozone debt crisis.

Further gains were seen for the dollar as news broke that consumer sentiment rose to its highest level since June on tentative signs of improved job conditions and early discounts from retailers, a survey showed on Friday.

The Thomson Reuters/University of Michigan’s final November reading on the overall index on consumer sentiment was 71.6, up from 67.7 in October and also above November’s preliminary reading of 69.3.

The median forecast among economists polled by Reuters was for a reading of 69.5. November’s reading was the highest since June’s level of 76.0.

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Written by Tom Tong

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