Dollar rallies against sterling and euro over fresh Greece concerns
28/Jul/2011 • Currency Updates•
Weak UK data and dovish Bank of England statements pulled sterling lower against the US dollar.
MPC member David Miles stated that the UK could fall back into recession, and although unlikely this indeed remains a possibility, and in further bad news, while industrial orders came in worse than expected, manufacturers are bracing themselves for what is set to be a tough third quarter.
Today we have CBI realized sales which are set to rise from -2 to 1. This, however, will have little impact as markets will continue to follow developments in the USA.
The euro sunk yesterday as risk aversion dominated the market, making significant losses against the dollar.
Despite the US debt ceiling continuing to dominate the headlines, Europe’s woes once again came to the forefront. S&P downgraded Greece’s credit rating and issued a stark negative outlook. Investors were also informed that they may only get back 30% – 50% of their investments. Furthermore, Moody’s downgraded Cyprus to just above junk status, suggesting that the EU could be forced to bail out a 4th country.
Additionally, German import prices fell by 0.6%, which disappointed the markets as the expectation was for them to remain flat, whilst inflation rose by 0.4% above a forecasted 0.1%.
Despite durable goods orders falling by 2.1% in June and legislators still nowhere near a deal to increase the US debt ceiling, the USD rallied due to concerns that the new Greek bailout package would not be enough to stop contagion from spreading in the Eurozone.
However, with the Beige Book, the name given to the Federal Reserve’s report on the state economy, revealing that 8 out of 12 Fed areas performed poorly markets will once again be focusing on the US debt ceiling, with the prospect of US defaulting is growing by the day. Also today we also will see unemployment claims and pending home sales data. Weekly jobless claims are expected to come in at 413,000, whilst sales are expected to drop by -1.5%, down from 8.2%.