Daily currency report
Overview
European officials will head to Brussels and are expected to make a decision on the financial future of Greece, which may just open up currency markets to another period of unpredictability in the eurozone connected to headlines of a “Grexit”. Leaders should decide whether Greece has done enough to access its bailout fund, or if the country’s crippled economy means that Athens may now need to think about another plan to survive, or even leave the single currency area. Although the issue of Greece’s broken finances has shattered market confidence in the past, there is light optimism that Athens will secure another bailout pass. This could lead to a strong rally for the more risky side of currency markets led by the euro, and potentially heavy losses for the safe haven US dollar and yen, as well as the British pound to an extent.Sterling rose against the US dollar, tracking risk-heavy trading in equity markets although the pound remains insecure ahead of Greek debate and Bank of England minutes. The yen put a stop to its recent sell-off, after the Bank of Japan decided to ignore political pressure and make no changes to its monetary policy.
Sterling
The British pound will be forced to sit through yet another high-level discussion about the future of Greece, with the UK currency facing a very unpredictable outlook amid a potentially “make-or-break” decision for Athens. Cable climbed to one-week highs with the pound supported by a more relaxed feeling about progress in Washington towards avoiding a fiscal cliff in the US.
US dollar
The US dollar fell after a jump in US stock markets and better-than-forecast US housing data encouraged risk taking which weakened safe haven demand. Equities rallied following earlier comments from Washington suggesting that policymakers were making progress on talks to avoid a potential fiscal cliff for the US economy. Data on existing home sales beat estimates by some margin, giving analysts a much stronger case to back what looks to be turnaround in the US housing sector.
Euro
The euro stumbled after ratings agency, Moody’s, downgraded France’s top credit rating in another sign that Europe’s unresolved debt troubles are becoming a heavier burden for Europe’s central economies to carry. The euro had strengthened to near two-week highs against the US dollar after a US-led stock market rally spurred demand for currencies offering higher yields than the greenback.