Consumer confidence in drops in the US effecting global markets

Tom Tong01/Feb/2012Currency Updates

GBP

Tuesday saw some positive figures for Sterling with it strengthening against the Euro as well as hitting a two-and-a-half-month high against the dollar. This can be largely attributed to both month end rebalancing requirements and slightly better risk appetite. The pound strengthened by 0.4 percent against the green-back which is strongest position its seen since November 18th last year. Sterling also managed some gains against the Euro despite weakening in the morning as the Euro optimism over an imminent Greek debt swap deal petered out in the afternoon.

Although it was a successful day for the pound analysts warn this may be short lived as the likelihood of monetary easing would make a difference in the coming weeks, especially after weak UK lending data on Tuesday.

EUR

The Euro fell against both Sterling and the dollar yesterday as it remained under pressure, this was despite a slight rebound following its sharp fall on Monday, as nervous investors waited for a fresh deal on the tense Greek debt crisis. It is likely that this less than positive run for the Euro will continue until an agreement on Greek debt reduction is in sight. The ongoing situation has rallied investor uncertainty as well as undermine the euro and drive fresh safe haven demand for the US dollar.

It was also announced yesterday that the European Central Bank will launch the second auction of its LTRO [Long Term Refinancing Operation], injecting a flood of new liquidity into the European banking system. Despite the effect this being no different from printing money the ECB will not classify this as QE, since the refinancing operation is in theory temporary, instead of a permanent injection of reserves.

Figures also showed yesterday that the Euro Area Unemployment Rate Up 0.2 Percentage Points to 10.4% the 8th Consecutive Monthly Rise.

USD

With American consumer confidence dropping yesterday we witnessed the Dollar strengthening against its European counterpart as traders were pushed seek the safety of the U.S. currency. The American consumer confidence index came at 61.1 for January, down from 64.8 in December, this a far cry from the 68 which was expected from economists.

Although the dollar gained against the Euro currency it weakened against others such as the Pound and the Japanese Yen.

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Written by Tom Tong

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