It’s A Riddle Worth Solving

Its hard to take our focus away from the euro. With many experts boldly stating their opinions about the single currency, words such as ‘dead’, ‘contagion’ and ‘pollutant’ have all been used to describe its current situation. So, why is it following the stress tests that have seen bank shares fall faster than Tiger Woods the euro still managed to find strength overnight? The only saving grace for the euro appears to be the uncertainty surrounding the US Dollar. With so much attention surrounding US debt, dollar weakness may just be propping the euro up.

Pound Sterling – UK Markets

Sterling at present would appear to be in the tumble dryer, being heavily dictated by the faulty machines that are Europe and the US. Sterling approached a six-week high against the euro before a summit of European leaders this week may decide the fate of the single currency. However, we must not read to much into the volatility of a sterling market this week as our currency will be heavily influenced by the news funnelling out of the US and Europe. If you would like some more light shed on this matter it is worth speaking to your broker who will keep you up to date with live proceedings.

US Dollar – US Markets

The biggest winner overnight was gold. With investors worldwide struggling to find safe ground for their ‘hard earned’ cash, the price of gold soared above $1,600 an ounce. This coupled with ongoing concerns about the US debt situation caused the US Dollar to fall against its major counterparts. In fact, the dollar index, which tracks the dollar against a basket of six currencies slipped to 75.081 from 75.343. Seeing as gold is traded in dollar’s, a sharp fall in one generally fuels an inverse in the other, thus contributing to the soaring value of gold. Now, as the August 2nd deadline approaches in the US, many investors are now contemplating where to put their money should the worst case scenario materialise. If the US were to default and furthermore, have their credit rating slashed by ratings agencies, investors would need to have a plan in place.

Euro – European Markets

In the face of the heavyweight battle currently ripping its way through the US and Europe the ever floundering single currency, whilst weakening, failed to drop below the benchmark 1.40 level versus the dollar. The real issue is whether this week’s summit will come and go without finalising terms for a second Greek bailout. If this were to occur, traders and investors would really be skating on thin ice. Investors are already sceptical. They are yet to see how leaders will be able to agree on the bailout. Record bond yields threaten to boost financing costs at sales of Spanish and Greek debt. Some senior analysts have even stated that come Thursday, when leaders reconvene, it will materialise that Greece is beyond repair, Italy is on a knife edge and the euro is very close to falling apart. Now that would be a story…

Other Currencies – Highlights

The issues currently crippling the Eurozone appear to be affecting economies further afield as the Canadian Dollar depreciated. This occurred as demand for commodities and higher yielding assets fell. The loonie fell against a majority of its 16 most traded counterparts. However, whilst one commodity currency took a battering, the Australian Dollar reversed recent losses as the Reserve Bank of Australia suggested that they may increase interest rates to combat inflation. However, the RBA said there was more time to assess price pressures.