US Dollar Begins To Rise From Slump As Focus Shifts Back To European Debt

Last week's quantitative easing decision by the US Federal Reserve had pulled the Dollar down to its lowest levels since December 2009. The decision to pump 600 billion Dollars into the US economy has also caused a chorus of protest led by Germany and China as several countries claimed that the decision could fuel the global currency issue by making the Dollar weaker and causing other export-based nations to suffer. The US Dollar however has picked up from its lowest point last week as attention this week is shifting back to European sovereign debt issues. This follows the fact that the US quantitative easing decision is over and better than expected US data was revealed on Friday. The Euro has begun to suffer as Irish and Greek debt problems once more rear their ugly heads.

Pound Sterling – UK Markets

Friday's close saw £1 buying €1.1522, essentially leaving the currency unchanged over the course of the week (+0.08%). The Pound also strengthened against the Dollar in total by 1.7% last week, closing at $1.6228. In early European trading, Sterling has gained against the Euro. This follows a string of surprisingly positive UK data with producer price data that came out on Friday showing its fastest rise in six months. This will however mean that the Bank of England's quarterly inflation report on Wednesday will have to tackle this as Bank of England has tried to downplay any problems with inflation being too high. Other positive news has emerged from Rightmove PLC this morning who have reported a rise in the number of Britons planning to buy a home for the first time as falling house prices is beginning to push up demand.

US Dollar – US Markets

The US Dollar has pulled back from its lows against a basket of currencies after its recent sharp fall last week. The Dollar rallied on Friday on the back of job and unemployment figures which came in well above forecasts. Non-farm payrolls rose by 151,000 in October which is the first increase since May and nearly 90,000 above expectations. Although this suggests that the quantitative easing decision may have been a little too angressive and Federal Reserve Chairman, Ben Bernanke, has been forced to defend the decision, this positive US data is helping push market attention back to the problems in Europe. There is also no major US news until Wednesday so European news is likely to be the key influencer on currency movements at the start of this week.

Euro – European Markets

The Euro closed last week up against the Dollar yesterday at $1.4084, a rise of 1.6% over the previous week's close. Currently, the Euro has fallen back slightly in early European trading as the focus of currency markets now appears to be shifting back towards spiralling Greek and Irish bond yields. The visit of European Union Economic and Monetary Affairs Commissioner Olli Rehn to Dublin today to look at Ireland's budget plan is fuelling fears about Ireland's struggle with the deficit. The prospect of further instability in Greece has also influenced the Euro. The Socialist PM, George Papandreou, had threatened to call a general election if his party suffered a heavy defeat in local elections. In the event, his party is leading in six of thirteen regions with the last too close to call. He has withdrawn the threat of an election, claiming that the Greek people have endorsed his moves to tackle the financial crisis. German trade balance data has been released this morning to reveal a widening in their surplus trade balance – although positive news for Germany specifically this reinforces the Eurozone problems with German strength at odds with struggling nations.

Other Currencies – Highlights

The Bank of Japan's latest policy decision has held interest rates at a steady range of zero to 0.1 percent and detailed some plans of Government bond purchasing to start this week. The British Prime Minister, David Cameron has embarked on a two day visit to China aimed at boosting trade between the two countries. The visit follows on from Cameron's trip to India in July which was also intended to boost bilateral trade. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.