The US dollar’s rise to six-month highs on a trade-weighted basis suggests investors are already taking a risk-off approach to trading as Italian election concerns continue to linger and after the US Government failed to produce a last- minute budget deal. A surprise announcement from China is hitting the Australian and Canadian dollars after Beijing decided to tighten housing market controls which are likely to reduce demand for commodities. The news comes before both the Australian and Canadian central banks announce their latest policy decisions. Sterling dropped to fresh two-and-a-half-year lows against the US dollar following shock UK manufacturing data which revived triple-dip economic recession fears in front of the BoE’s interest rate and quantitative easing announcement. President Barack Obama had warned that failure to avert the March 1 sequestration deadline would cost the US economy thousands of jobs.
Sterling
The pound’s decline has now extended to 19-month lows against a basket of currencies, making it the worst performing major currency this year. The Bank of England’s monetary policy decision could prove pivotal for the pound’s near-term outlook. Should the BoE relaunch quantitative easing and leave the door open to further stimulus injections for the UK economy, there could be more trouble looming for the British currency.
US dollar
Gridlock in Italian and US politics is pushing investors in the direction of safety, and the US dollar subsequently starts at six-month highs against a currency basket. The US currency is also being underpinned by an improvement in US fundamentals after data on new home sales surged, and manufacturing growth hit one-and-a-half-year highs in February. Trading momentum in the coming sessions should come from Washington after US lawmakers failed to reach an 11th hour deal to avoid $85 billion in across-the-board spending cuts, known as the sequestration. President Barack Obama had warned earlier that no budget deal would cost the US economy thousands of jobs.
Euro
Italian election results left the euro stunned and near three-month lows against the US dollar, with a hung Parliament in Rome damaging hopes that Europe will move on from volatile bond markets and government debt risks this year. The euro’s outlook from here will probably rest in the hands of the European Central Bank’s monetary policy meeting and movements in Italian long-term bond yields; a key barometer of investor confidence in Europe’s third-largest economy.