World events are causing ripple effects in the currency markets today. Violence in Libya and the continuing threat to oil prices has strengthened safe haven currencies including the US Dollar, Swiss Franc and Japanese Yen whilst the Euro has weakened despite the positive PMI figures yesterday. The New Zealand Dollar has slumped following the tragic earthquake last night. Sterling has lost out to the safe haven currencies but gained on the Euro in anticipation of the Bank of England policy minutes tomorrow
Pound Sterling – UK Markets
The Pound has fallen against the US Dollar since Monday but has made gains so far today on the Euro. Some support was found from comments made by Bank of England policy maker Martin Weale suggesting that a small rate hike would be appropriate. This comes before tomorrow’s Bank of England minutes from the last policy meeting which will reveal how many members voted for a rate hike this time round.
There will be a flurry of interest in the individual views of policy makers with the all important votes this week. Adam Posen is speaking later today, David Miles and Charles Bean are also due to speak this week.
This morning’s public sector net borrowing revealed that UK public finances are now at their strongest levels since January 2009 with a stronger than expected surplus of 5.252 billion on January public sector net borrowing. This puts the Government well on track to meet yearly fiscal targets.
US Dollar – US Markets
The US Dollar has strengthened against other major currencies as violence broke out in Libya and investors sought a safe haven currency to store funds.
This follows yesterday’s US bank holiday causing trading to be more subdued. Home Price Index and Consumer Confidence figures are released this afternoon putting the US back on the economic calendar.
Euro – European Markets
The Euro received a temporary boost from robust news yesterday with German business confidence growing to 111.2 from 110.3 yesterday. In the wider Euro Zone, activity in the factory industry grew at its fastest rate since June 2000, reaching 59 in the index and the PMI reached a four and half year high at 58.4. After a short gain, the currency has since lost out as safe haven flows have gone to the Dollar, Yen and Swiss Franc.
Rhetoric about whether interest rises may be set to occur in Europe is also continuing to come from European Central Bank policy makers which markets will continue to watch for clues as to if a rate rise may actually be imminent.
The Swiss Franc is going from strength to strength climbing to a three week high against the Euro in response to both its use as a safe haven as well as a growing trade balance surplus.
Other Currencies – Highlights
Japan has suffered a credit downgrading by Moody’s Investor Services from stable to negative, which follows a similar downgrading by Standard & Poor’s in January. This comes shortly after Japan lost its position as the second largest world economy to China.
Despite the news, the Yen has been gaining as a safe haven currency in reaction to current world events.
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