Dollar strengthens as market shifts focus to Eurozone debt issues

Tom Tong03/Aug/2011Currency Updates

GBP

Sterling rallied to a two month high versus the euro during Tuesday trading as speculation intensified regarding Eurozone debt and the threat of contagion to Spain and Italy. Sterling was helped by positive construction data released in the morning. However, this did not correlate into a rally against a broadly firmer dollar. UK construction PMI data for July beat expectations with a reading of 53.5, compared to a forecast of 53.0, but the positive impact on sterling was limited as construction makes up less than 10%of the economy. The major data out of the UK this morning is services sector PMI, which is forecast to show a decline from 53.9 in June to 53.2 in July.

EUR

The euro sold off on Tuesday as risk appetite subsided due to renewed concerns over the euro debt situation. Analysts are now looking closely at the rising costs to insure against default in Portugal, Spain and Italy. The European debt problems are once again under the spotlight as the markets focus shifts from the US debt ceiling talks which is creating selling pressure among investors. The major piece of economic data out of the Eurozone today will be in the form of June’s Retail Sales figures released at 10:00 BST.

USD

The dollar performed well against the pound and euro on Tuesday as US President Barack Obama has now signed into law a bill raising the US government’s debt ceiling and cutting spending. The deal passed by the senate will look to cut $2.4 trillion from US spending plans over the next decade. The market’s attention is now re focusing on the euro debt situation which is creating flight to safety bids and in turn strengthening the dollar. The major data release from the US today comes in the form of ADP employment change for June. However, the market’s true focus will be on Friday’s non-farm payroll for a clear indication of the health of the US economy.

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Written by Tom Tong

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