Daily currency report
Financial markets have turned noticeably careful following a strong spell of risk taking this week ahead of Europe’s two-day summit on the debt crisis. Confidence that Spain will soon enter a less complicated bailout than first thought increased further, after yields on Spanish debt fell to a seven-month low. That optimism took the euro to even greater heights, with the more risky single currency reaching new one-month highs against the safer US dollar. Should politicians fail to bring forward long-term solutions to the debt crisis, the euro and other yield-heavy currencies that have gained sharply this week will be at risk of a broad sell-off. Most other currencies also gained against the dollar, as well as the yen, as investors kept bundling haven assets over to the sell side of the market. The British pound found reprieve and gained against the US dollar after UK unemployment suddenly dropped.
The pound jumped to its highest point in almost two-weeks and managed to draw vital support against the euro, after a surprise drop in British unemployment restored a little hope amongst investors about the UK’s economic recovery chances. Positive reports came just as the Bank of England published minutes from its earlier policy meeting. The notes revealed a split committee, unsure whether expanding quantitative easing measures was the right next step. Together the updates suggest that another round of asset purchases from the Bank of England in November is far from a done deal.
Easing worries about Spain’s fiscal future, and a brighter global growth setting continued to eat into the US dollar’s haven appeal. The greenback has given up over a per cent on a trade-weighted basis just this week, hitting new one-month lows.
The euro put together another strong performance, rising to fresh one-month highs against the US dollar after yields on Spain’s Government Bonds fell to seven-month lows. Lower borrowing rates for Madrid comes after Moody’s maintained its investment rating for Spanish debt earlier this week, while some politicians in Germany supported giving Spain the cash that it needs. However, anticipation of clear-cut rescue for Spain could disappear quickly over the coming days as European leaders convene for their latest summit on the debt crisis.