US interest rates held as Bernanke dispels rumours of QE3 as Sterling boosted by narrowing trade deficit

Tom Tong14/Mar/2012Currency Updates

GBP

Yesterday saw the Pound reach a one week high against both the Euro and the Dollar. After a less than successful day of trading on Monday Sterling seemed to be helped along by a narrower than expected trade deficit for January which widened from the previous month to 7.53 billion pounds. However, this undershot forecasts for a 7.88 billion pound deficit. Traders also reported an increase for demand by long term investors which also seemed to strengthen Sterling against its counterparts. It has been suggested by analysts that these sudden gains will not continue further due to to concerns over the UK economy and its fragile state.

EUR

Although yesterday saw the Euro lose ground against many of its competitors but it was not all doom and gloom for the Eurozone. The German Finance Minister Wolfgang Schaeuble and the French Francois Baroin stated yesterday that they thought the worst of the euro zone crisis appeared to be over, but gave the warning to member states that was no excuse to skimp on difficult reforms. In other news the European Union yesterday froze half a billion euros (S$823 billion) in aid to Hungary, this is the first time time they have punished a member state for flouting budget rules. Hungry has been sanctioned by its EU counterparts in order for Budapest to announce more structural budget cuts within the next three months and prevent its deficit from breaking the EU’s limit of 3 per cent of economic output.

USD

With positive news coming from the US the Dollar managed to reach an 11 month high vs the Yen and make some significant gains against the Euro. The Federal Reserve announced yesterday that interest rate will remain on hold as the American economy has been improving significantly since the last meeting earlier in January this year. As expected there was also no further mention of steps being made towards further economic stimulus and the Fed has also highlighted the fact that it is anticipating that the job market will improve steadily.

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Written by Tom Tong

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