IS THE BELL TOLLING FOR THE US?

It’s all been happening Stateside overnight, as ratings agency Moody’s intimates that the US could lose its AAA rating should policy makers fail to agree a strategy to raise the debt ceiling. They really need to do this, as an obligation of some $14 trillion is in danger of becoming unmanageable. According to Moody’s, should America default then its top-notch rating goes, spelling disaster for the greenback.

Pound Sterling – UK Markets

It’s much of the same old story as far as the pound is concerned. It continues to suffer from the negative impact of low interest rates for the foreseeable future, high debt levels and a consistently fragile economy all round. To emphasise this, figures yesterday showed that the number of benefit claims has risen sharply and well above expectations. The good news is that we have seen some gains made against a pressurised dollar, with another cent eaten up yesterday afternoon to close at 1.6113. No real shifts versus the euro, however, which persists in hovering between the low and mid 1.13s. Against a basket of other currencies, we see no tangible movement. It is becoming increasingly clear that the pound will remain stagnant for some time to come, lacking the positive data and the bullish monetary policies needed to drag it out of its mire.

US Dollar – US Markets

In addition to Moody’s statement, the dollar also suffered from comments yesterday by Ben Bernanke, the Federal Reserve chairman, that further quantitative easing measures would be implemented if necessary. It’s treading a fine line and it will be interesting to see what develops over the coming few days as apparently heated discussions continue on Capitol Hill with regard to the deficit. The potential is there for some sharp weakening – whether this will be allowed to happen is open to debate.

Euro – European Markets

The threat from contagion is ever present. Italy is the latest country to come under the spotlight and the IMF has made it clear that it expects to see cuts made to bring their economy back on track. However, the ECB has maintained a completely different policy to the nine sages at the Bank of England and is keen to prevent the scourge of inflation spreading throughout the zone. We have seen two interest rate increases in the past few months and who’s to say there won’t be more? The upshot is that the euro continues to hold its own. In all fairness, the struggling members have all been peripheral contributors to the zone and it’s likely that we would need to see a major player such as Spain, or France, crumble economically before we see the major slide that we’ve been expecting for so long.

Other Currencies – Highlights

The Swiss Franc is currently enjoying the benefits of investors seeking safe haven currencies. It yesterday hit record levels against sterling, the euro and the dollar. The New Zealand dollar has also advanced to record levels, with the economy growing at a faster pace than the Central Bank had forecast. The Australian dollar may come under pressure going forward, as speculation a slowdown in the nation’s economy will prevent its central bank from raising interest rates, could hurt.