Tough Week Ahead For The Euro

Despite US non-farm payroll data coming in surprisingly lower than forecast on Friday, the Dollar as well as Sterling has maintained gains on the Euro with currently little on the horizon that may help the struggling Euro regain strength. The single currency has toppled to around three month lows against the US Dollar as last week’s poorly performing Portuguese bond auction has set the tone for another auction from Portugal as well as Italy and Spain this week. In addition, speculation is increasing that Portugal may be the next nation in need of a bail-out package.

Pound Sterling – UK Markets

The Pound has gained on the Euro since Friday and is also higher against the US Dollar, in part gaining due to inherent Euro weakness as European bond auctions draw attention to the difficulty raising funds in Europe. Thursday sees the monthly Bank of England monetary policy committee meeting. Whether or not there will be an interest rate rise in the UK to deal with high inflationary pressure has been an ongoing issue but expectation is that monetary policy will remain unchanged this time round. There will however no doubt be increasing focus on the impact of Government spending cuts on growth. Halifax has revealed that house prices have continued to fall by 1.3 percent in December from November meaning that the average house price is now 1.6 percent cheaper than the start of 2010 now at £162,435.

US Dollar – US Markets

The Dollar has managed to extend its gains against the Euro despite Friday’s non-farm payroll data coming in surprisingly below target. It has however lost ground to Sterling. There were many expectations for Friday’s non-farm payroll data to be much higher as ADP payroll data earlier in the week had come in nearly three times higher than forecast. In the event, non-farm payrolls rose 103,000 much under the 150,000 predicted. Uncertainty in Europe however has helped the Dollar maintain its run against the Euro although it has turned lower against Sterling and the Yen.

Euro – European Markets

The Euro has stooped to near-three month lows against the Dollar as uncertainty increases with the focus on bond auctions this week in Spain, Portugal and Italy. Portugal’s auction last week proved that the outlook for bond auction in indebted nations has dimmed and speculation has been circulating that Portugal may be next in line for a rescue package. With worries that debt auctions will be less successful, European assets are becoming less alluring to investors, and concerns are mounting that Euro-zone nations will not be able to raise funds. Some publications have began to report that Portugal will be in need of rescue funds soon should the nation struggle with funding costs and that German and France are adding pressure for a bail-out package to be implemented to prevent the spread of debt. Portugal’s bond auction takes place on Wednesday.

Other Currencies – Highlights

The Canadian Dollar has risen for a third week and gained the most against the Euro since 2009 following a wave of positive data. Crude oil price increases as well as strong data on new jobs has pushed the currency higher which has also benefited from better sentiment towards the US economy. The Australian Dollar on the other hand is still continuing to struggle as floods have worsened in Queensland with knock-on effects on the economy and exports coming in at higher estimates as the damage worsens. The currency touched the rate of 99.08 cents against the US Dollar on January 7th, the lowest since December 20th. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.