Daily currency report

Broader market sentiment is positive despite ongoing concerns over the Fukushima nuclear plant and developments in Libya. As a result, currency markets are seeing downward pressure applied to the dollar which has opened near four-month lows against the euro and two-week lows against sterling. Sterling is expected to remain supported at this week’s start as investors look forward to the CPI release as well as the release of the Bank of England’s minutes. In the eurozone, focus will be placed on the EU summit. The EU is expected to announce a comprehensive package aimed at dealing with its debt crisis once and for all.

Sterling

Sterling movements against the US dollar and euro were somewhat limited when compared to movements in other major crosses. Sterling is expected to find support going into the CPI release. CPI is forecast to rise to 4.2 per cent year on year, but the release has surprised to the upside of expectations recently.

US dollar

The US dollar opens near four-month lows against the euro and two-week lows against sterling. Investors will focus their attention on assessing the impact of this weekend’s Western coalition attacks on radar sites and air bases within Libya as they try to impose the UN’s resolution to create a no-fly zone. A rise in the price of oil has been the immediate impact. The dollar has an inverse relationship with the price of oil and that could limit the dollar’s upside potential early in the week. Oil prices are also seeing upward pressures as many voice their concerns over the safety of nuclear energy with the crisis in Japan still unfolding.

Euro

The euro opens near a four-month high against the dollar. The Portuguese government is expected to announce what austerity measures it is prepared to make to get its fiscal house in order. The address as well as an EU summit scheduled towards the end of the week could refocus attention back onto the European debt crisis.

Japanese yen

The Japanese yen remains under the influence of the G7 whose central banks have intervened in currency markets to push the yen lower. Speculators have thus far shown little backbone to put on more long yen positions despite the continued uncertainty at the Fukushima nuclear facility.

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