Daily currency report
Overview
The US bipartisan “super-committee” admitted defeat in coming up with the desperately needed budget cuts agreement which led to sharp declines in stock markets. Moody’s also warned France is in danger of losing its top credit rating, sapping demand for higher yields and sending the refuge US dollar higher across the board. The pound tumbled close to six-week lows with the UK’s very own fiscal health concerns weighing on sterling while unwinding of carry trades sent the New Zealand dollar to multi-month lows against the greenback while emerging market currencies were dumped alongside the Canadian dollar. The euro looks susceptible to further weakness as contagion seeps into core eurozone nations while France and Germany quarrel over the European Central Bank’s recent bond market interventions.
Sterling
Rating agency Moody’s warned France that it is in danger of losing its coveted triple-A credit rating just as the UK prepares to publish public borrowing figures for the month of October. Yields on French government bonds continue to unnerve markets and focus on the fiscal health of the UK, as well as its neighbours, sent sterling crashing to fresh 5-week lows against the US dollar.
US Dollar
Another political deadlock in the US sent stock markets crashing and the safe harbour US dollar to record highs against a number of rival currencies. The bipartisan “super-committee”, charged with trimming the nations debt burden has failed, as expected, to reach an agreement over expenditure reductions and tax hikes which has triggered automatic spending cuts beginning in 2013. Although rating agencies confirmed the outcome will not immediately affect the county’s credit rating, mounting debt troubles on both sides of the Atlantic sapped investors’ appetite for risk. The dollar hit March highs against the New Zealand dollar while emerging market currencies plunged alongside commodity-linked assets such as the Canadian dollar.
Euro
Focus on US debt allowed the single currency to post modest gains though the single currency still remains extremely vulnerable as contagion spreads across Europe. After playing an instrumental role in seeking changes to enhance the euro area’s emergency government bailout fund, France and Germany are now at odds over the European Central Bank’s fire-fighting capabilities. Rating agency Moody’s has once again warned markets of the risks facing the French economy while in Spain, Banco de Valencia has become the first retail bank to seek a bailout. France, along with Italy, is calling for the European Central Bank to step up its bond-buying interventions in order to help stabilise government borrowing costs which is now threatening the stability of core eurozone members.
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