Daily currency report

Volatile shifts in eurozone government bond yields continue to weigh on the euro as contagion spreads from Italy into other core nations. Despite strong demand for UK government bonds as a hedge against Europe’s crisis, sterling fell to three-week lows against the US dollar after consumer price inflation data reminded investors of the problems facing the British economy. The pound has managed to firm against the weaker euro although unemployment data and the Bank of England’s quarterly inflation report could result in further declines. Encouraging manufacturing and retail sales reports from the US economy were overlooked as European troubles continue to drive investors into the safe harbour US dollar and yen.

Sterling

UK unemployment levels spiked to 1996 highs and data is forecast to show that Britain’s jobless rate rose. Additionally, claimant count figures for the month of October are expected to reveal an increase in the number of people seeking benefits. The Bank of England will also release its quarterly inflation report and Investors expect inflation to remain persistently high in the near-term therefore focus will really centre on the central bank’s growth projections.

US Dollar

US retail sales figures posted another healthy month-on-month increase in October while a November’s gauge of manufacturing activity in the New York region produced an encouraging print. The greenback is fast approaching 11-month highs against the euro as Europe fails to convince investors that it has the necessary mechanisms in place to cope with its fiscal incompetence.

Euro

European bond market jitters sent the euro crashing to 1-month lows against the US dollar and yen as contagion spreads from Italy into other core nations. While Italian bond yields moved back above 7 per cent which is widely considered as bailout territory, Spain auctioned debt and were forced to pay record high prices in order to meet fading demand. Meanwhile spreads between French and German bond yields widened sharply in another worrying sign market participants are becoming increasingly doubtful about investing anywhere other than Germany right now. Furthermore, German lawmakers have already begun looking into the possibility of allowing weaker members of the eurozone to leave the single monetary union, naturally encouraging speculation of a break-up.

Japanese Yen

The Bank of Japan announced no changes to its monetary policy, leaving interest rates at the range of zero to 0.1 per cent. The central bank also refrained from topping up its asset buying scheme but did deliver a worrying assessment of future growth prospects.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/