Daily currency report

Overview

Sentiment towards the British pound turned sharply lower after UK trade data highlighted Britain’s vulnerability to eurozone debt and economic risks. Accordingly, the pound tumbled to over three-month lows, weakened further by risk averse trading following an unexpected warning from rating agency Fitch. The euro is at risk of a cataclysmic collapse according to Fitch unless the European Central Bank adopts more non-conventional support measures. The European Central Bank is set to announce its January monetary policy decision. Concerns that policymakers may hint at additional interest rate cuts sent the euro to fresh 16-month lows against the US dollar while Italian debt sale is adding to the markets bearish tone. Data from China that showed consumer price inflation falling to 15-month lows is also failing to lift investor moral. Traders are more than likely going to favour low risk currencies with such a heavy line up of event risk.

Sterling

Sterling tumbled across the board after UK trade data highlighted Britain’s daunting exposure to a marked slowdown in eurozone growth. The nation’s international trade gap widened more than expected in November and despite some hopeful signs indicating the UK economy may have grown in the final quarter of last year, the overall impression still remains negative.

US dollar

Conflicting views from members of the Federal Reserve may have persuaded traders to dial back on US dollar buying under normal circumstances. However, current market conditions are far from normal. Grave uncertainty surrounding the eurozone economy and the fiscal health of individual governments is promoting steady diversification into the greenback.

Euro

The euro breached new 16-month lows versus the US dollar ahead of an intimidating line-up of event risk. Concerns of a eurozone recession could force the European Central Bank to adopt an extremely dovish standpoint on monetary policy while the ECB is also under pressure to expand its non-standard measures such as government bond market intervention.

Japanese yen

The Japanese yen surged to fresh October 2011 peaks against the under-fire British pound after UK trade data highlighted Britain’s vulnerability to eurozone debt and economic problems.

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

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