is4profit Weekly Currency Roundup (27th July 2012)
Here’s the is4profit currency roundup for those of you keeping your on the currency markets…
The Euro began the week struggling against its peers as fears over Spain and the seemingly never-ending Euro crisis damaged confidence in the currency. On Monday the Euro slumped by 1% against the Japanese Yen falling to its lowest level for more than 11 ½ years. Against the US Dollar the single currency plummeted to a two year low and against the pound near a four year low. Spain’s problems were escalated as more and more regional governments stepped forward, cap-in-hand for financial assistance. The Euro wasn’t helped by Tuesday’s weaker-than-expected purchasing managers’ survey for Germany; It showed that the engine of Europe’s private industry contracted for a third straight month and raised fears that Germany is on the verge of stalling.
Germany’s flash manufacturing PMI fell to 43.3 in July, well below forecasts for 45.3, while its services PMI was also below forecasts at 49.7. The data followed French manufacturing PMI which was also well below forecasts. Investors were spooked further after the credit ratings agency, Moody’s cut the credit ratings for Germany, Luxembourg, and Holland to negative watch. By the end of the week the currency’s fortunes changed for the better following a speech by the president of the European Central Bank, Mario Draghi, who vowed to do whatever it takes to ensure the single currency’s survival. As a result the Euro surged upwards against the US Dollar as risk sentiment improved. It remains to be seen whether gains will continue as investors may once again be spooked by a lack of action despite the strong words from Draghi.
The Dollar started the week posting a two year high against the Euro as investors flocked back to the currency for its safe haven status. The Euro fell around 0.6 percent against the Dollar to $1.20821 its lowest level since June 2010. It continued to post highs against most of its peers until Friday when the ECB president Mario Draghi gave investors some optimism over the Euro. Traders are now waiting for the second-quarter US Gross Domestic Product report. It is expected that output growth will have slowed to an annualized pace of 1.4%, down from 1.9% recorded in the three months through March. If poorer-than-expected figures are released then we can expect traders to increase calls for the Federal Reserve to implement further quantitative easing.
The pound started the week trading at its highest level for 3½ years against the Euro as investors fled the single currency for safer climes. Against the US Dollar the Pound slumped to a week-low against the US Dollar after the concerns over the Eurozone and more specifically the issues of the Greek and Spanish debt. The pound dropped further after Spain and Italy announced bans on short selling of financial stocks, aimed at discouraging speculative trading that could weigh on the countries’ banks and insurers. Sterling has also dropped by more than 1 percent against a buoyant yen to a seven-week low of 121.16 yen as a result of investors flocking to safe haven currencies. On Friday, following Draghi’s speech, the Pound jumped to its highest level in nearly a week against the US Dollar, rising around 1.4% to $1.5724, and well above a two-week low of $1.5458 struck earlier in the day.
The Japanese Yen remained strong against the other currencies for most of the week, posting an 11 year high against the Euro and new highs against the US Dollar. After Mario Draghi’s speech the Yen lost ground against the Euro and other risk adverse currencies as risk appetite improved lessening demand for the safe haven Yen.
The ‘Aussie’ began the week trading down against the Yen and US Dollar over the concerns over the Euro crisis. The release of the latest PMI out of China saw the currency perk-up once again after it showed that China’s manufacturing output grew at its fastest pace for nine months. Any positive news out of China is also good for Australia as the Chinese are their biggest trading partner. On Friday, thanks to Draghi’s speech, the ‘Aussie’ has risen against the US Dollar as investors’ appetite for risk improved.
New Zealand Dollar
At the start of the week the ‘kiwi’ took a bit of a nose dive as fears out of the Euro zone impacted the confidence in the currency. In mid-week the ‘Kiwi’ fell to a five-week low thanks to tepid inflation figures across the Oceanic currencies. The currency fell as low as 78.04 US cents, and dropped to 78.28 US cents from 78.59 cents. The currency was down from 79.18 cents. The New Zealand Dollar fell to 76.50 Australian cents from 76.82 cents. By the end of the week it had followed its Australian relation in trading upwards against the Dollar as risk sentiment improved on the back of the speech made by Mario Draghi. The currency also benefitted from the reserve bank of New Zealand’s decision to maintain the current interest rate. Central bank Governor Alan Bollard kept the official cash rate at 2.5 percent for an 11th straight meeting, saying the threat of a rapid deterioration in Europe was lingering over New Zealand’s trading partners.
At the start of the week the ‘Loonie’ hit an all time high against the Euro. As the week progressed it followed the pattern of the other commodity based currencies, sliding against the safe haven currencies of the US Dollar and Japanese Yen. By mid-week the release of poor economic data out of the US and as fears over Europe caused investors to avoid the riskier commodity currencies. The commodity-sensitive ‘Loonie’ was also pressured by falling prices for oil and metals.
By the end of the week Canada’s Dollar rose to its strongest level since May versus its American cousin following the Draghi speech. Gains in the price of crude oil and copper, the nation’s largest exports have also boosted the currency.
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