'Risk On' as Euro benefits from hopes of an increased EFSF

Tom Tong28/Sep/2011Currency Updates

GBP

Sterling rallied versus the U.S dollar during Tuesday trading, tracking gains in the euro, as a rise in global stocks boosted risk sentiment and prompted investors to cut bets the pound would fall. Safe haven demanded diminished slightly after talk surfaced of policy-makers putting together measures to ease the euro zone debt crisis which supported demand for riskier currencies versus the safe haven dollar.

It is likely that the pound could face more selling pressure in the near term as speculation persists that the Bank of England may implement more monetary stimulus before year-end to boost the faltering UK economy. This would require the BoE to print more pounds and flood the market with the currency, swamping demand. Additionally the U.K Manufacturing Sector was dealt a blow as Europe’s biggest defence contractor BAE systems said on Tuesday it will cut nearly 3,000 jobs in Britain.

EUR

The euro strengthened slightly on Tuesday against the Dollar up from eight-month lows on Tuesday as a report that Europe is considering beefing up its bailout fund prompted short-covering, and it could extend its rebound in the very near term given traders’ overwhelmingly short positions in the currency.

Asian currencies also rebounded after massive selling in the past two weeks, helping to ease worries about growing contagion from the euro zone’s debt crisis to the world economy and supporting the euro and other risk currencies.

The euro remained vulnerable to persistent doubts over policymakers’ ability to craft a plan quickly to deal with the crisis. Growing expectations that the European Central Bank will likely cut interest rates as early as next month are also expected to undermine the currency in the longer term.

USD

The U.S Dollar lost ground during Tuesday trading as a rise in global stocks boosted risk sentiment which caused the safe haven flows to subside. Today we have Durable Goods orders out of the U.S for August which are expected to show a decline from to 0.2% from a previous reading of 0.7%. If this drop in orders for U.S Manufacturers is realised we may see the Dollar lose further ground this afternoon.

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Written by Tom Tong

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