Markets volatile as Japan disaster continues

Tom Tong15/Mar/2011Currency Updates

GBP

Sterling climbed against the dollar yesterday as it benefitted from the news that the ratings agency Fitch felt that the UK’s credit rating of AAA was looking increasingly sturdy. Sterling dropped to a 4 month low against the euro early on, due to a stronger euro after Friday’s positive bailout policy developments, but gained back some ground on the back of Fitch’s announcement. Overnight, through Asian trading the pound lost ground against both the dollar and euro and finds itself back where it was on Monday morning. This is a relatively quiet week for data releases with only two really worthy of note in the UK, the labour market statistics which are released on Wednesday and the BOE Q1 inflation attitudes survey which comes out on Thursday.

USD

US stocks fell to a month and half low yesterday as investors worried about the financial aftermath of the devastating earthquake, tsunami and nuclear fallout in Japan. However, US treasuries and the USD have benefitted from the spate of risk aversion overnight with the greenback being bought as a safe haven as investors exit stocks. The key data released from the US today will come late in the evening as the FOMC make their interest decision, which is extremely likely to remain unchanged. The markets will be keen to hear if there is any change in sentiment and rhetoric from Fed Chairman Ben Bernanke during the policy announcement that follows. Another factor in the relative strengthening of the dollar since Monday has reports that this week’s figures will show a clear expansion in industrial production.

EUR

The euro performed well yesterday as it maintained momentum from Friday’s policy announcements about the broadening of the EFSF and renegotiating of terms for Greece’s lending package. The single currency touched the physiologically important 1.40 mark against the dollar as the market reacted well to the news that European leaders had agreed to bump up the Eurozone bail-out fund.  Furthermore, the cost of Greece’s rescue loans was cut while the lending capacity of the European Financial Stability Facility was increased to €440bn from around €250bn. The single currency reached a four month high against sterling and has maintained the momentum through Asian trading. The only data release of significance today is the German ZEW survey at 10, which provides a snap shot of the state of the German economy.

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Written by Tom Tong

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