Dollar strengthens due to safe haven demand as markets focus on Spain and France

Tom Tong15/Nov/2011Currency Updates

GBP

The pound had a poor day against the dollar yesterday, mirroring the euro losses against the Greenback. The move was down to continued concerns over European sovereign debt with no rest bite seen since Monti was elected in Italy.

Market sentiment remained fragile, weighing on riskier currencies such as sterling after an Italian bond auction at which yields came down from last week’s record highs but remained near critical levels. Many believe if things in the Euro Zone take a turn for the worse the market will want to buy dollars which will push cable lower, while we could see more pressure on the euro/sterling. Many investors have sold the euro in favour of the pound this month on the view that UK assets are safer than some euro zone ones in light of the deepening debt crisis in the region.

On the domestic front, investors will focus this week on the Bank of England inflation report, released on Wednesday. The Bank is widely expected to cut its forecasts for UK growth, which could pose downside risks for sterling. Figures on UK employment and retail sales this week may put the pound under further selling pressure if they show the economic recovery is continuing to struggle.

USD

Monday saw the Greenback strengthen across the board, as investors continue to foresee the U.S. currency as the safe-haven to deep-seated concerns about the eurozone’s huge debt problems outweighing investor optimism over a new Italian government.

Today see’s the release of October’s U.S. retail sales and the year on year figures for producer price index data. These figures will not have a significant impact on the volatility on the Dollar today but what this data will determine is the direction and the general state of the American economy and outlook of consumer confidence.

EUR

Any hope that the appointment of Mario Monti as the new Prime Minister of Italy was short lived yesterday as 3bn Euros worth of five-year bonds were auctioned off yesterday at the highest yield seen for the past 14 years at 6.29%.

Italy has now appointed a technocratic government in order to push through these ever painful reforms and spending cuts.
Markets do however believe that the Euro is going to fail as debt levels reach unsustainable levels and credible solutions become increasingly unlikely by the day and risk premiums are now at pre-euro levels.

Spain yesterday saw yields on their 10 year debt rise to 6.12%, ever closer to the 7% figure that has lead to bailouts for Greece, Ireland and Portugal.
The problem facing economies at the moment is that there is little and limited growth and without this growth the deficit and debt reductions will not be possible.
Today in Europe we see EMU and German ZEW survey figures as well as European GDP.
USD

Monday saw the Greenback strengthen across the board, as investors continue to foresee the U.S. currency as the safe-haven to deep-seated concerns about the eurozone’s huge debt problems outweighing investor optimism over a new Italian government.

Today see’s the release of October’s U.S. retail sales and the year on year figures for producer price index data. These figures will not have a significant impact on the volatility on the Dollar today but what this data will determine is the direction and the general state of the American economy and outlook of consumer confidence.

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Written by Tom Tong

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