The Dollar Makes A Comeback

The Dollar, which has been lurking in the background for the last few weeks, as volatile movements in Sterling and the Euro have taken centre stage, has stormed back into the limelight following an upwards rally which began on Friday. Officials in the US have dropped hints that a withdrawal from monetary stimulus as well as an interest rate rise may happen sooner than markets are expecting. The Pound meanwhile has remained struck down since Friday at some of the lowest levels in four months. Speak to your broker about how to protect yourself from any further drops.

Pound Sterling – UK Markets

Continued uncertainty about how long it might take for an interest rate rise to occur in the UK is putting more pressure on the Pound which is once again dwindling against other major currencies, in particular down to a four and a half month low against the Euro. Weaker than expected consumer spending from last week as well as the warning from Moody’s rating agency that Britain’s AAA credit rating could be under threat due to the poor figures are also not making sentiment towards the UK economy particularly strong. Tomorrow is a heavy economic data day for Sterling with mortgage approvals, net lending to individuals, total business investment, money supply and GDP figures all colliding in the morning which could certainly bring about more movement.

US Dollar – US Markets

The Dollar began a rally on Friday following comments from several officials at the Federal Reserve suggesting that both an interest rate rise as well as a withdrawal from monetary stimulus in the US may happen sooner than markets had assumed. The US had been seen as seriously lagging behind the UK and Europe in terms of monetary policy changes however President of the Philadelphia Federal Reserve Bank Charles Plosser suggested that interest rates should start to lift in the not too distant future. St. Louis Federal President James Bullard also suggested that policy makers should begin considering whether to withdraw the ongoing monetary stimulus that has been used to shore up the economy. This kind of sentiment could continue to shore up the Dollar as long as economic data does not disappoint.

Euro – European Markets

The Euro has dropped against the Dollar since Friday but grown against the struggling Pound. Downwards pressure against the Dollar stemmed from concerns that Portugal may need further financial help despite denials from the nation itself. This came after a downgrade on Portugal’s credit rating. Further uncertainty has stemmed from the defeat of German Chancellor Angela Merkel’s coalition in Germany. The defeat of Merkel’s coalition has clouded the political outlook in Europe’s biggest economy. European leaders have also cut the start up capital available for a programme of future emergency aid for cash-strapped nations with the emergency fund dropping by 40 billion Euros for the level expected for 2013. Despite these issues, the fact that an interest rate hike is still possible in April in Europe is seeing the Euro strengthen on Sterling despite losing out to other major currencies.

Other Currencies – Highlights

The New Zealand Dollar has fallen from a one month high following comments made by the Prime Minister about the economic effects of last month’s earthquake. John Key announced that the nation might post a record budget deficit due to the costs that the earthquake has generated. The slip in the currency comes just after it reached a one month high on Friday last week.