Daily currency report

The EU summit which took place over the weekend has failed to come up with a comprehensive solution to the debt and banking crisis in Europe. Leaders say they are getting close to a solution although another meeting this week should provide more solid details. As a result, the euro is likely to remain vulnerable. Data released in China has helped lift risk appetite which may provide continued support though. Similar to the euro, sterling remains at risk of profit taking after the pound spiked to six-week highs following the release of healthier UK public borrowing figures. The dollar is under broad pressure, particularly against its safe haven rivals the Swiss franc and Japanese yen, as investors make adjustments to their defensive assets in anticipation of more US quantitative easing.

Sterling

The pound shot to a six-week high buoyed by upbeat UK public borrowing figures. Although the US dollar was under significant pressure towards the end of last week, sterling has not always been in a position to benefit given the precarious state of the UK economy.

US dollar

The US dollar suffered a real beating following comments from the US Federal Reserve’s Daniel Tarullo who implied that more quantitative easing was on the horizon. Mr Tarullo’s comments had a delayed impact on market psychology and the result was extremely damaging for the greenback. Under such uncertain circumstances involving the eurozone debt saga, investors decided to acquire the currency units of Japan and Switzerland despite recent intervention action from authorities in both countries. Subsequently, the yen breached a new record high against the dollar while the franc managed to reach a one-month peak.

Euro

European leaders agreed that the July 21 plan to solve the debt and banking crisis is not enough. While that acknowledgment in itself is a move forward, it was not what investors were looking for in terms of a promised “comprehensive solution”. Nevertheless, a promise of another meeting tomorrow that will apparently provide more details, will keep investors sidelined until that time. At stake is an agreement to recapitalise European banks, solve the Greek debt problem by asking for larger haircuts from the private sector while increasing the size of the union’s bailout fund. As for the banking crisis, negotiations are still being focused on how much the private sector will “voluntarily” lose on Greek debt.

Japanese yen

The Japanese yen surged to fresh record highs against the US dollar, which helped push it up against most majors.

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