Sterling climbed to 2½-month highs against the US dollar as investors continue to take advantage of the US Federal Reserve’s promise to keep interest rate ultra-low for another two years at least. The pound also benefited consumer confidence and mortgage approvals data which almost suggested the UK economy may not need another shot of monetary stimulus. The euro led risk sensitive currencies higher on the hope that Greece will avoid what markets fear could be a catastrophic default, although that sentiment faded later in the day. As a result, the US dollar benefited from its allure as a refuge from global risks while below-par US consumer confidence data tempered demand for higher-yielding currencies. Chinese manufacturing data beat expectations and subsequently lightened concerns the economy is headed for a sharp slowdown. However, the news is not expected to encourage a shift in sentiment which so far looks to be favouring safe haven assets such as the yen. Japan could react against the yen’s record strength by intervening in markets again after Standard & Poor’s warned Tokyo it is in danger of a credit downgrade.
Sterling
Hopes Greece were progressing towards a solution which would see Athens avoid default helped keep demand steady for risky assets. As a result, the pound climbed to 2½-month highs against the US dollar thanks largely to favourable market sentiment as apposed to any real turn around in Britain’s economic picture.
US dollar
US consumer confidence unexpectedly fell in January, raising suspicions the nation’s growth rate in the fourth quarter of last year is already losing steam. Investors turned cautious and bid the US dollar higher as demand for risky carry trade activity dried up.
Euro
In spite of recent optimism surrounding Europe’s progress towards a confidence-boosting fiscal pact and signs Greece is set to agree a deal that could halve its debt burden, the euro declined as traders remain wary of what could be a very long and difficult year for the eurozone. Even with a new debt-restructuring plan, the Greek economy remains a massive problem for European leaders who fear the nation’s euro-exit may ultimately be the only long-term solution. Furthermore, growth across the region is fading which makes any new agreement on fiscal austerity even less effective.
Japanese yen
Rating agency Standard & Poor’s warned Japan that its credit rating, which is already on negative watch, is at risk of a downgrade if the export-nation’s economic growth outlook does not improve as the economy’s recovery from recent natural disasters remains sluggish and at risk of another downturn.
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