Sterling sees gains against dollar as US credit rating comes under threat

Tom Tong14/Jul/2011Currency Updates

GBP

The pound made solid gains against the dollar as fed boss Ben Bernanke testified to the House Financial Services Committee and Moody’s put the US’ AAA credit rating under review. Meanwhile, against the euro the pound closed marginally down but still managed to maintain most of the ground made through Wednesday’s fears of Eurozone contagion while a spike in Italian debt prices helped butcher the euro. The day had started badly for the pound as UK unemployment data came in worse than expected, with the change in the number of claimants soaring to 24.5k. The weak employment data saw sterling sell off across the board and it wasn’t until Bernanke’s testimony that sterling’s recovery began. On the day the pound was down by 0.25% against the euro but closed up 1.5% against the dollar. There is no significant UK data out today.

EUR

Sentiment for the euro remains pretty weak in view of the current developments to the lingering Sovereign debt crisis. Earlier this week the euro had fallen to a 4-month low against the dollar and also lost over 1.5% against the pound as a sharp selloff of both Spanish and Italian government bonds fuelled fears of contagion from the Eurozone debt crisis. The single currency managed to claw back a fair bit of ground against the pound amid weak UK employment data. Meanwhile, it regained much of this week’s losses against the dollar as the market reacted very negatively to Bernanke’s testament to the House Financial Services Committee. On the day the euro gained 0.25% against the pound and 1.7% against the dollar. Today the main data focus will be Eurozone inflation data, with yearly CPI expected at 2.7% and Core CPI expected to be at 1.5% (due at 10:00).

USD

The dollar suffered losses across the board as a mixture of a bearish reaction to Bernanke’s Testimony and Moody’s decision to review the long standing US AAA credit rating led to a mass dollar selloff. The dollar shed over 1.75% against the euro and 1.5% against the pound as Bernanke’s Testament indicated the further need to maintain low interest rates and the willingness to stimulate economic growth through further quantitative easing. Meanwhile Moody’s decision to review the AAA credit rating reflects the lack of an agreement within congress over raising the US debt ceiling. Moody’s view is that is essential that this is agreed by August 2 or there is a serious risk of US default on government debt. Today the main data focus will be on US PPI, expected to be at -0.2%, Retail Sales expected to show monthly growth of 0.1% and US unemployment claims is expected at 413k – all due at 13:30.

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Written by Tom Tong

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