Daily currency report
Overview
Six central banks offered to help liquidity at banks in Europe by lowering the cost on dollar funds. The move increased risk appetite amongst investors. The euro, commodity and CEE currencies all benefited from the announcement of coordinated intervention, while safe haven currencies such as the Swiss franc, yen and US dollar weakened. Equity markets around the globe have seen strong gains. The improved sentiment was further supported by strong economic data coming out of the US. Convincing investors to maintain their riskier positions will be challenging and investors will be looking once again at debt auction in Europe. France and Spain are scheduled to auction off debt. If the debt is well received then confidence could continued to rebound. If not, gains made could evaporate.
Sterling
The pound has followed euro and dollar developments, while sterling gave up some of its gains against the euro.
US dollar
The dollar suffered heavy losses as investors jumped out of the traditional safe haven currency after central banks intervened in markets. The Federal Reserve, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and Swiss National Bank, decided to coordinate action to reduce the cost of US dollar funding to banks. The rate that the European Central Bank will have to pay for dollar loans was made cheaper by a half a percent and should help European banks that need funding in dollars. At the same time, the central banks said that they were opening up swap lines in other currencies as a precaution. The action had an explosive impact on currency markets. The safe haven currencies, such as the US dollar, Japanese yen and Swiss franc suffered losses in favour of riskier and growth related currencies, such as the Aussie, Canadian and New Zealand dollars, as well as the euro.
Euro
Spain will attempt to auction off between €2.75bn and €3.75bn worth of fresh debt. An Italian bond auction seen earlier in the week went smoothly and hopes are high that the same will be seen at Spain’s auction. While the auction may be placed, it may be done so with a high cost. Markets fear that Spain will have to pay a yield that has not been seen in 14-years to entice invertors. France will also be selling its last of 2011 debt. Again, investors will want to see how great the demand is for this debt.
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