Daily currency report
Global investors will be busy taking up positions ahead of what is being dubbed as another all-or-nothing EU summit. The euro will again be at the heart of currency plays, with investors desperate to learn more about what plans, if any, Germany is prepared to endorse as the region’s crisis moves deeper inside the borders of Spain. Madrid will attempt more bond sales and price levels will give analysts early clues as to what markets are anticipating from eurozone leaders.
The US dollar, as always, will lead any reaction in foreign exchange markets and currently looks well supported from early safe haven moves having ended broadly higher. Cable is therefore at risk of more losses but the pound may just find its own safe haven credentials reinforced if UK economic fundamentals provide the same level of optimism as surprise retail sales figure.
Forecasts ahead of the release do not bode well for the pound with the UK currency already in danger of revisiting January lows against the US dollar. However, sterling is looking a little more robust against the euro and other high-interest currencies like the Polish zloty with global sentiment still keeping traders mostly defensive.
The US dollar ended in familiar fashion; surging to a 12-day peak against a basket of its currency rivals on safe haven demand. Investors seem to have quickly pocketed worries about the Federal Reserve’s monetary policy again with Europe’s ongoing sovereign debt crisis back on the table for review. Looking ahead, investors will remain sensitive to any US economic data with many still keeping their calendars open ready to pencil in a date for the Federal Reserve’s next fix of quantitative easing.
Investors appear to be cutting back bearish bets on the euro before a critical two-day EU gathering on hopes leaders may be putting together in another initiative to help give the eurozone’s indebted members some financial relief. Still, the single currency is within touching distance of two weeks lows versus the US dollar and any positive thoughts will be tentative at best.
Japanese politics is weighing on the yen with the country’s ruling Democratic Party finding it difficult to overcome internal fighting over proposals to double Japan’s sales tax. The government has been under pressure from rating agencies to move along fiscal plans having already suffered ratings downgrades.