Europe Becomes More Precarious

The Euro has dropped again as tension mounts over how Greek debt should be handled and with concerns over the strengthening anti-Euro stance that was revealed in elections in Finland. There has been a surprise from the ratings agency Standard and Poor’s who have moved the outlook on the US AAA credit rating to negative on the basis that the budget deficit is not being handled well enough. The Dollar managed to reach one week highs before this announcement but Sterling is by far in the best position it has been against the Euro for a fortnight. Speak to your broker or register an enquiry to take advantage of this.

Pound Sterling – UK Markets

Sterling has continued to grow on the Euro as speculation over the Greek debt restructure continues. It fell to a one week low on the Dollar before starting to pick up again as news of Standard and Poor’s negative outlook for the US credit rating was announced. Sterling is still very vulnerable however as markets are predicting that the UK interest rate rise will not come in May as some had originally thought but as far back as September or October. The Bank of England minutes tomorrow morning may have an impact on Sterling depending on the contents. Should the number of members voting for an interest rate hike have risen from the three members last time round, Sterling could see some upwards movement – and if it has dropped, Sterling could see some weakness instead as an interest rate rise becomes increasingly less likely.

US Dollar – US Markets

The Dollar made gains against other major currencies throughout yesterday until the news of concerns over the US credit rating stopped the Dollar in its tracks. Standard and Poor’s have put the US Government on notice that their AAA credit rating could be downgraded due to issues with budget deficits. US policy makers have been told that the rating will be downgraded unless policy makers agree on a plan by 2013 to reduce the budget deficit and national debt. Although it is expected that a more solid agreement will be reached by then, this will add more pressure to the Government and could become a longer term factor haunting the US currency.

Euro – European Markets

The Euro dropped the most in four months yesterday as speculation that Greece will require a debt re-structure is bringing to light further problems in the Euro-zone. This overshadowed better than expected PMI manufacturing data yesterday. There are concerns that a Greek default would strain banks all over Europe and that holders of Greek bonds such as the European Central Bank would suffer losses. Stronger support for an anti-Euro party coming through in election results from Finland added to the woes.

Other Currencies – Highlights

The Australian and New Zealand Dollars have weakened as losses in commodities and stocks reduced demand. The Japanese Yen has also been surging as a safe haven as a result of the news on the outlook for the US credit rating and the European debt crisis. This was the fourth day of climbs for the Yen as the situation in the Euro becomes more precarious and questions are raised over the US economy.