is4profit Weekly Currency Roundup (20th July 2012)
For small businesses keeping their eye on the currency market, we bring you the latest currency roundup for the week ending Friday the 20th of July…
The Euro began the week down against its peers and spent the rest of the week taking a beating in the currency markets. Worries continued to mount over the debts of the region with the single currency coming under heavy pressure against the Pound. On Monday the EUR/GBP pair hit 78.55 the lowest level since 2008. Against the US Dollar the Euro began the week close to a two year low but rallied ahead of the Federal Reserve’s congressional hearing. As the week progressed the currency made a rollercoaster journey in the markets against the US currency before finally settling into the region of 1.227.
The US currency was the only main pairing that the Euro didn’t take heavy losses from. As the week progressed we saw the Pound hit its highest level for nearly four years and the Australian Dollar post an all time high, the New Zealand Dollar wasn’t far behind. German Chancellor Angela Merkel renewed fears that the euro-debt crisis is about to enter a new dangerous phase and the chances of a member nation leaving the troubled bloc increased. Interest on Spain’s bond yields edged close to the all important and dreaded 7% mark again, once more raising fears that Spain could go the same way as Greece.
It is expected that the Euro will continue to post losses as there is little sign that investors will be put at ease over the Euro crisis. Whenever new policies and plans to curb the crisis are announced confidence rises before quickly falling, indicating just how little the markets believe that Europe’s leaders can find a solution.
The Dollar began the week under pressure and a series of important economic data reports played key roles on the currency’s fortunes. The US economy suffered from dismal retail figures sales across the US fell by 0.5% in June, much worse than the 0.2% rise which economists had expected.
The Dollar also lost out to the Japanese Yen as investors preferred the Asian currency as a safe haven. By midweek the currency had posted some gains ahead of the congressional testimony by Fed Chairman Ben Bernanke but fell after investors were disappointed at the lack of any signs that further monetary easing measures are being prepared to be implemented.
In his testimony to the Senate Banking Committee, Bernanke said the economic recovery was being held back by anxiety over Europe’s debt crisis and the path of U.S. fiscal policy, and expressed unease over a stagnant jobs market. Bernanke’s comments on the economy, especially on the jobs market, suggested the central bank could opt for further monetary stimulus. By the end of the week the Dollar was in a weaker position then it was at the same time last week.
The Dollar is expected to reverse its downward trends next week as the Euro crisis continues to drag on.
The Pound has spent the week hovering around fresh three and a half year highs against the Euro, and has done well against the US Dollar. Worries continue to rise over the growing risks to Spain and Italy’s finances. As a result, sales of the single currency increased and investors sought refuge in the relatively safe assets of the UK. Some of the renewed Euro selling came after the release of a Wall Street Journal report that the European Central Bank favoured imposing losses on senior bondholders of the most severely troubled Spanish savings banks, a contrast to 2010 when it took a position that senior bondholders in bailed-out Irish banks should not suffer losses. The Pound suffered slightly mid-week after the release of disappointing retail sales figures. It had been predicted that sales would increase by 0.6% but instead rose by only 0.1%. Despite the disappointing figures the currency shrugged them off and continued to strengthen against the Dollar and Euro until it breached a new close to four year high against the single currency.
The Yen was one of the biggest winners this week. The currency is often regarded as a safe haven and as confidence in the Eurozone continued to wane the Yen prospered. It performed so well that it once again beat the Dollar. The outcome of the Federal Reserve’s congressional hearing midweek saw investors turn to the Yen as Quantitative easing was not totally ruled out. The weak economic data out of the world’s largest economy saw the Yen benefit from its safe haven status.
The ‘Aussie’ started the week trading at a respectable level against the US Dollar after reclaiming some of the losses it made last week. The currency hit the 1.023 mark before slipping to the region of 1.022. The strengthening came after the release of China’s GDP data for the second quarter of 2012. The figures were better than many analysts were predicting and as a result the commodity based currencies made gains.
In midweek the country’s central bank indicated that it had no plans to make further cuts to interest rates. The bank citied strong economic growth as the primary reason for the lack of action citing that there was ‘no need’. The action or lack of saw the currency hit a two month high against the US Dollar. By the end of the week the Aussie hit a record high against the Euro but halted its gains against the ‘Greenback’ as demand for riskier assets began to fall.
New Zealand Dollar
The ‘Kiwi’ followed the pattern of its Australian neighbour this week. It too hit a record high against the Euro. Against the Australian Dollar however it ‘has slipped to a seven week low after traders predicted that the country’s reserve bank will cut the official cash rate over the coming year. The ‘kiwi’ fell to 77.21 Australian cents from 77.53 cents, holding near its lowest level since May 28th. Weaker dairy prices also weighed on demand for the kiwi dollar, as trade-weighted prices fell 0.9%, led by a 6.4% decline in whole milk powder.
The ‘Loonie’ made steady progress against a basket of currencies this week on the back of higher commodity prices. The price of oil and copper rose giving the Canadian economy a timely boost. The currency’s strength came on the back of the currency heading for a second straight weekly gain on bets that the Bank of Canada will be the first among Group of Seven peers to raise interest rates.
Currency update provided by TorFX – FSA Authorised Currency Brokerage. For more information and to request a free quote, visit www.torfx.com