Daily currency report

Violent clashes in the Middle East are showing little signs of an end, sending oil prices rocketing to $100 per barrel in the US for the first time since 2008. As a result, the dollar fell broadly, reaching multi-week lows against the euro, Swiss franc and sterling on fears that a sharp spike in energy prices could take the steam out of the US economic recovery. The franc, as expected, currently remains the most favourable safe haven destination while the pound continued its ascent after minutes from the Bank of England’s February meeting. The euro rose sharply as investors continue to speculate that higher energy prices will force the European Central Bank into hiking rates with the European Central Bank’s President Jean-Claude Trichet seemingly talking up inflation threats. The Australian dollar picked up after local business investment rose while the commodity-linked Canadian dollar fell given its close ties to the US economy.

Sterling

The pound climbed to almost 1-month highs against the US dollar after minutes from the Bank of England’s February policy meeting showed another member of the Monetary Policy Committee voting in favour of an interest rate hike.

US dollar

Turmoil in Libya could yet spread to other oil producing nations, encouraging investors to continue their scramble for safe haven assets such as the yen, franc and Gold. Furthermore, higher inflation expectations are expected to bring forward rate hikes in the eurozone and the UK, making their currencies more appealing in terms of yield potential when compared to the dollar. Violent clashes in the Middle East are showing little signs of an end. Therefore, the dollar may continue to suffer unless US weekly jobless claims post an encouraging drop which would help lighten unemployment concerns, and reduce the need for more of the Federal Reserve’s controversial second quantitative easing program.

Euro

Eurozone industrial new orders jumped in December, highlighting the strength of the euro area’s industrial and manufacturing sector. However, investors were more concerned with the continued rise in oil prices as a result of intensifying violence in Libya. Consequently, focus on inflation, identified as a significant threat for major economies in 2011, is growing rapidly.

Japanese yen

The yen has now risen by over 2.3 1.7 per cent against the US dollar and the pound respectively over the past week as continuing violence in Libya drives energy prices higher and stocks lower.

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