Daily currency report
The head of the IMF, Christine Lagarde, issued a stark warning stating that the world economic outlook is gloomy and that no country is immune from the risks of a global economic depression. The ratings agencies also began enforcing their recent threats as Standard and Poor’s downgraded 10 Spanish banks. Further bad news emerged from France after a report was released stating that the French economy is likely to have fallen into a recession in the last 3 months of 2011 and may continue into the first quarter of 2012. The overall negative global economic picture is dominating market speculation.
Sterling traded within recently established ranges, holding close to a 10-month high versus the single currency, as markets continued to focus on Europe. The pound looks set to hold onto advances made against the euro trading near 10-month highs against the single currency.
The US dollar eased slightly as good-looking US data improved risk sentiment, giving investors a reason to take profit on the dollar’s multi-day rally this week. Although positive data from the US didn’t help the dollar much, as it did more to fan risk appetite, it’s consistent with the market narrative of the US economy faring much better than its European counterparts, a factor that can lead to more meaningful gains for the dollar in the months ahead.
The euro tiptoed above 11-month lows against the dollar, finding support from smaller than expected contractions in local factory data and from a Spanish government bond auction that enjoyed solid investor demand. However, given the deeply bearish sentiment toward the euro, it could be susceptible another sell off.
The yen rose to two-week lows against the greenback, shrugging off disappointing data on the home front. The Bank of Japan’s closely watched tankan survey of business sentiment unexpectedly printed at -4 in the fourth quarter from 2 in the prior three months. Investors had expected a -2 reading for the current quarter. The disappointing data offered more evidence of how a strong yen, which has clocked several record highs against the dollar this year, has significantly slowed Japan’s export-reliant economy. The data keeps pressure on local authorities to act to stem yen appreciation.
Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/