Weak chinese fundamentals dampens risk appetite as market looks to US interest rate decision

Tom Tong13/Mar/2012Currency Updates


In the absence of any significant UK data releases, the Pound was driven largely by external factors yesterday. Sterling fell to its lowest in over six weeks versus a firmer dollar on Monday as increased optimism over the U.S. economy boosted the greenback. It also fell to a 2 week low against the Euro as continued positive news surrounding Greece continues to drive the single currency. Today’s UK Trade Balance data has the potential to change things however, any clear direction cannot be re-established until British employment market data is released on Thursday, in which the UK is expected to remain steady at an 8.4% unemployment rate for the third consecutive month.


The Euro was boosted in the currency market yesterday afternoon, after market whispers suggested that eurozone Finance Ministers are close to agreeing the second bail-out deal for Greece, which was the main topic of discussion at the Eurogroup meeting in Brussels yesterday afternoon. However, the eurogroup were also examining the worrying state of Spain and Portugal’s public finances, so positive sentiment towards the single currency may not hold. The euro rose around 0.6 percent for the day versus Sterling, its highest level since the end of February and clawed back Friday losses against the Dollar as it rose 0.3%. The single currency was seen as likely to struggle amid contagion concerns that Portugal could be the next to come under pressure in the troubled peripheral debt markets after Greece look to be starting to take small steps to avert a disorderly default.


The US Dollar traded at a 6 week high against the pound yesterday, its highest level since 25th January, before dampening slightly with gains of around 0.4% on the day. Dollar strength was driven by the return of a ‘risk-off’ trading environment, which in turn was caused by weak Chinese trade figures, released over the weekend. This showed that Asia’s giant economy ran its largest deficit in over 10 years last month, fuelling concerns of a global economic slowdown. The safe-haven Greenback was also helped by non-farm payrolls which as we know beat expectations on Friday, and thus reducing the chance of more monetary stimulus from the federal reserve. The economic outlook in the UK remained uncertain, with soft industrial production data on Friday adding to investors’ reluctance to hold sterling, inciting some traders forecasting that Sterling will move back towards the $1.50 mark should this new regime where U.S. data is dollar positive and structural out-performance can continue.


Written by Tom Tong

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