Daily currency report
Sterling fell, as the risk of contagion from Greece's deepening crisis put the focus back on the UK's fiscal problems. It was another day of woe for the euro as Standards and Poor's downgraded Spanish sovereign debt to 'AA' from 'AA+' with a negative outlook. This sparked fresh euro selling; with the euro tumbling to a one-year low against the dollar. The Federal Reserve restated it's intention to keep the benchmark interest rate near zero for "an extended period", but there was an upbeat tone to the announcement as the Fed claimed the labour market is 'beginning to improve'.
Sterling hit a near three-week low against the dollar, impacted by the mounting sovereign concerns in continental Europe. With no economic data out in the UK, the worsening eurozone credit issues have shined the spotlight back onto the UK's own debt issues, which in many ways parallel those of Greece and other eurozone peripheral nations. The other theme that continues to play heavy on the pound is the high likelihood of a hung Parliament in May's election, which continues to rumble on, as the risk of a political gridlock in the UK will severely limit any government's ability to enact difficult fiscal reforms.
The dollar climbed to the highest level in almost six months against the euro as Greece's debt crises spread to other European nations, thus encouraging safe haven dollar buying. The dollar also gained versus the yen when the Federal Reserve announced it would be keeping its interest rates on hold.
The euro continued to slide, dipping to year lows against the dollar as Standard & Poor's cut the debt rating of Spain in a sign the European deficit crisis is spreading. The euro has already come under heavy fire this week when Greece and Portugal suffered credit rating downgrading.
The yen rose from a near three-week low as concerns surrounding Europe's widening deficit crisis spurred demand for Japan's currency as a refuge.