Daily currency report
Overview
Sterling rallied to near 4½-month highs versus the US dollar as investors continued to sell the currency on the prospect of more Federal Reserve quantitative easing. The euro also reached similar heights against the greenback, supported by talk eurozone leaders are developing a more comprehensive bailout fund for the region’s debt-burdened nations. However, that sentiment changed completely soon afterwards and the US dollar retraced earlier losses following more cautious remarks from the Fed Chairman, Ben Bernanke. As a result, stock markets tumbled and safe haven buying picked up. Growth-linked currencies like the Australian and Canadian dollars fell sharply as investors piled back into the refuge yen and US dollar.
Cable rallied to a four-month high, driven higher by concerns the Federal Reserve will soon add to its stimulus programme and partly on news the UK government is close to selling the bailed-out Royal Bank of Scotland to Middle East investors. However, sterling ran into some stiff technical resistance and finished pretty much where it started, suggesting that investors are still nervous about developments in the British economy.
US dollar
The US dollar tumbled to one-month lows against a basket of currencies as traders continued to dump the greenback in anticipation of more monetary easing from the Federal Reserve. However, the dollar later bounced back following another warning from Fed Chairman, Ben Bernanke, that the economy is still not on a sustainable path to recovery and additional stimulus cannot be ruled out. Even though comments regarding quantitative easing are dollar-negative, investors were more concerned another slowdown would harm global growth prospects.
Euro
The euro briefly recorded March highs versus the broadly under pressure US dollar on optimism is relaxing its resistance towards bolstering the eurozone’s emergency bailout fund. Finance ministers will meet on Friday and there are widespread reports leaders could build up a firewall of some one trillion euros. Nonetheless, the single currency tracked changes in market sentiment to end the day lower after the Federal Reserve’s Ben Bernanke again warned the economic recovery is not at a sustainable level yet. The remarks fuelled more global growth worries and, as a result, stocks fell alongside demand for risky currencies.
Japanese yen
The yen rose across the board as demand for riskier investments took another hit after comments from the Federal Reserve reminded markets the global economy is still on shaky grounds.
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