The pound reached 2 ½ month highs against both the Euro and the Canadian dollar on the back of the worsening situation in Greece in the case of the former and falling oil prices in the case of the latter but lost out against the high yielding currencies like the New Zealand dollar as a measure of risk appetite returned to the markets.
The Head of the European Union Finance Ministers warned that the next instalment of the €110 billion bailout packaged agreed in May 2010 for Greece may not be released unless the EU/IMF can be satisfied that the Greek government is making sufficient progress on implementing its austerity measures. This heightened concerns about a Greek default and the threat of contagion spreading within the euro zone banking system. The borrowing costs of fellow suffers including Portugal and Spain rose sharply as a result.
The pound also made gains against the US dollar after worse than expected data from the US dented confidence in the economic recovery there. The US economy grew just 1.8% in the first three months of the year compared to 3.1% in the final quarter of 2010. Analysts had pencilled in growth of 2.2%. Figures on the US employment market failed to provide any cheer. The number of people who applied for unemployment benefits last week bounced by 10,000 to 424,000 confounding forecasts of a fall to around 405,000.
The first gains this week in the Far East equity markets was sufficient to bring a measure of risk appetite back to the markets. This helped the high yielding currencies like the Australian and New Zealand dollars. The NZ dollar in particular is close to a 10 year high against the pound after a higher than expected inflation report shortened the odds on the New Zealand Reserve Bank increasing interest rates in the near term
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
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