Euro's On-going Struggle overshadowed by Fitch's big news

Tom Tong15/Mar/2012Currency Updates

GBP

Ahead of next week’s budget Fitch dropped a bombshell this morning reducing the UK’s outlook from stable to negative. This came after a relatively strong day for Sterling despite poor unemployment data. It rose to a one-month high against the single currency in the morning with a better relative outlook for the UK economy after recent positive retail sales and house prices data, retracing slightly in the afternoon because of poor employment figures. Alarmingly they held a 13 year high in the three months to January while the number claiming Job seekers rose more than forecast. As yet it is unknown if we will be able to avoid further quantitative easing. The news this morning will no doubt have the shadow parties calling for reduced austerity, there may well be some surprises in next weeks budget.

EUR

Strong economic sentiment in Germany fell short of the data out of the US as Eurozone uncertainty continued. Despite the German ZEW survey of Economic sentiment rising for the fourth consecutive month in March the single currency fell 0.6% to $1.3065. Some believe the Euro is becoming a “funding currency” as we have seen the global equity markets make gains while the currency falls. A similar

phenomenon we have seen in the Japanese Yen. The on-going fear about the strength of the Eurozone and the possibility of the debt crisis spreading beyond Greece continued to weigh on the single currency.

USD

The US federal Open Market Committee said in a statement that the US economy had been expanding moderately and confirmed rates would be kept unchanged to at least 2014. They did not mention additional stimulus packages but “With unemployment falling faster than expected and inflation declining at a slower pace than previously anticipated, there is no urgent need for QE3,” said Rabobank’s Philip Marey. The positive outlook was confirmed by retail sales seeing its biggest rise in five months.

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Written by Tom Tong

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