Dollar up on safe haven demand as a further 28 Spanish Banks downgraded

Tom Tong26/Jun/2012Currency Updates

GBP

Sterling hovered near a two week high against the euro yesterday as investors expected the ECB would have to ease monetary policy if leaders failed to make significant progress in tackling the euro debt crisis at the summit later on this week; although gains were limited due to speculation of more quantitative easing into the UK. This also had a negative effect against the dollar, as sterling decreased in yesterday’s trading against the dollar. Speculation that the BoE will vote to expand the 325 billion pound asset purchase programme to boost growth at their July meeting has gathered pace after dovish minutes of the last policy meet released last week. Moving on to data, there are three pieces of information we’re keeping our eyes on this week. Today, Public Finances data is due, and after showing a modest surplus in three of the past four months, a deficit is expected to be posted following expected lower tax receipts in May. Similar to the Currency Account, a deficit should weigh on the British pound and if it grows further, it should drive the world’s longest tenured fiat currency lower in the coming months. Further, on Thursday, Nationwide house prices and the finalized first GDP quarter reading will be released.

EUR

The beginning of the week brought news that Spain have made a formal request for a loan to help its declining financial sector, although the country has yet to specify how much of the 100 Billion euros it will ask for. However, this will be confirmed on July 9th when Spain and its other currency partners reach a final agreement on the loan, such as the interest rate. Spain earlier this month finally admitted that some of its banks were in severe trouble owing to the build-up of toxic assets following the collapse of the country’s bloated real estate sector after 2008. The euro fell to its lowest in almost two weeks against the dollar in yesterday’s trading and looks to extend its losses due to investors doubting that a solution can be written up at this week’s European Summit. Expectations for the two day summit are quite low after a meeting with the eurozone’s four biggest economies on Friday, at which Germany resisted pressure for common eurozone bonds or a more flexible use of Europe’s rescue fund.

USD

Demand for safe haven currencies sent the dollar higher against the euro yesterday on concern that the upcoming EU summit will do little to tackle the ongoing eurozone debt crisis. Good New Homes Sales data (the only data out yesterday) raised further confidence in the Greenback. However, risk sentiment has limited gains. The dollar index, which measures the US currency against a basket of six other currencies, climbed to 82.461 from 82.267 on Friday. The main data out today is CB Consumer Confidence, which is expected slightly lower than last months figure.

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Written by Tom Tong

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