Dollar benefits from safe haven flows as Merkel confronted with riots in Greece

Tom Tong10/Oct/2012Currency Updates

GBP

Sterling declined to a one-month low against the dollar yesterday as disappointing UK manufacturing data caused markets to reconsider the strength of the UK economy. It appears that the UK is mired deeper in recession than we thaught as ONS figures revealed that the UK trade deficit has widened to more than double the levels we saw in July. The release from the Office for National Statistics damaged George Osborne’s credibility as hopes of an export driven recovery seem laughable at this time. ONS statistics also showed that the UK had experienced a slide in manufacturing and industrial production which reflects the decreased demand and economic struggles in Europe. At the Conservative party conference today David Cameron is expected to talk of the ‘painful decisions’ that must be made to ensure the UK continues to compete on a global level whilst asking for more time to reduce the looming deficit. It is a quite day for data releases in the UK and movement in Sterling will be down to any change in risk appetite.

EUR

Angela Merkel visited Greece for the first time since 2007 yesterday to reassure the people that Germany saw Greece in the future of the Eurozone. Whilst she offered sympathy there was no promise of further aid or concessions to the draconian austerity the Greek people are facing. Elsewhere, Mario Draghi was speaking to the European Parliament and warned whilst Greece had made progress there was still much to be done to get back on the path to recovery. This warning shot spooked investors and saw the Euro sell off against the Pound and Dollar.

Today we have minor industrial output figures released from some of the peripheral Eurozone nations but the market will be eagerly watching for rhetoric from the Troika who are currently in Greece compiling a report on progress over the pledged austerity reforms.

USD

The dollar had a good day yesterday as it benefited heavily from safe haven flows after the IMF announced that the global economic recovery is stalling the previous day. The IMF cut it’s 2012 growth forecast by 0.2%, and its 2013 forecast by 0.3%. Set against this back drop of uncertainty the Greenback gained back the ground it had lost against the Pound towards the end of last week and also made gains versus the Euro.The ICE dollar index, which measures the US currency against a basket of six other currencies, rose to 79.974 from 79.596 the previous session. Analysts on Wall street will be eagerly anticipating earnings season and hopeful to see positive figures from Corporate America. Good numbers could reaffirm the run of dollar strength we have seen this week and see the Greenback trading new ranges against the Pound and Euro. Later this evening we have the beige book being released by the Fed and also the Fed’s Fisher is speaking.

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Written by Tom Tong

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