Currency risks grow

USD climbs higher

In brief: The U.K. has also published data on its industrial output. In spite of positive forecasts able to support the Pound rate, it will most likely fluctuate under the influence of interest for risks.

Risk evasion continued Tuesday allowing the U.S. dollar and Japanese Yen to maintain their positions against the background of lack of economic reports planned earlier. First of all, it was caused by the expansion of spreads of Irish and Italian bonds giving rise to anxiety towards some EU member states. Even Obama’s promise to cut business activity tax by $ 200 bln. couldn’t abate investors’ fears of taking risks.

On the other hand, despite assuasive statements by high-ranking officials and a number of positive reports, the U.S. economy is still on the edge of a repeated recession, which is another reason for evasion from risky assets. In fact, despite the favorable NFP report last Friday, the prospects of labor market recovery are equally vague. According to a Manpower research, the U.S. workforce won’t be sought after in the fourth quarter, as opposed to a great request for employees in China, India, Brazil and Taiwan. The ensuing U.S. unemployment rate may go up to 10% once again. All said, today’s Beige Book report is unlikely to reverse the trend in the market. Rather, it will either confirm, or refute investors’ outlook with regards to the condition of the U.S. economy. In case of unfavorable news, the U.S. dollar may gain value against the background of risk evasion. EUR. Now the pan-European currency goes on falling amid fears that sovereign debt risks may wreck European banking system, leading to negative impact on economic recovery in the Eurozone. No wonder, such bad news led to the expansion of spreads, while rumors grew in the market that the ECB had intervened Tuesday morning in the bond market to support sovereign debts of the PIIGS (Portugal, Italy, Ireland, Greece and Spain) member states.

Unfavorable data on German factory orders placed an additional strain on the Euro rate. Decrease in their figures, another indicator of slowing recovery in the EU, is reflecting falling demand in the Eurozone. Even the statement by the ECB chairman E.Novotny, in which he stressed that the EU isn’t under the threat of deflation, and that its member states facing debt crisis made good progress in overcoming threats they had faced, couldn’t stop the Euro downfall. According to data on Germany’s trade balance published today, the seasonal surplus showed slight growth by 12.7 bln. euros, comparing to 12.4 bln. euros in June., falling short of backing up the pan-European currency rate. If data on industrial production equally fall short of forecasts, the Euro will face pressure bridging the backing of 1.2670. What is more, its fluctuation can bу stimulated by an abatement in EUR|GBP cross rate). GBP. Now yesterday the British Pound couldn’t bridge the backing of 1.53 rate and started retreating, equally owing to the dynamics of GBP|EUR cross rate, against the background of a lack of reports. Today the Pound showed considerable growth, the reason being Halifax data on house prices that surpassed forecasts.

Dmitriy Srebnev
2010-09-13 20:40, Currency news.

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