Greenback strength continued, bringing the Euro down to lows of 1.2803 for the day and the Pound to 1.5067. With so much fear surrounding the EU debt crisis the Dollar benefited from safe haven status and economic news was positive, reinforcing the view that the recovery is now underway in the US. ADP employment growth reported private firms were hiring again with better than expected results for the 3rd consecutive month whilst non-manufacturing ISM came in at level with analyst’s expectations. Tomorrow will see the release of initial jobless claims and unemployment data and non-farm payrolls on Friday.

   The Euro continued its descent or ‘limbo’ dance as some commentators have deridingly described it, begging the question - how low can it go? During Wednesday’s trading it reached lows of 1.2803 against the Dollar and 119.943 to the Yen. Riots in Greece reached a flash point as anarchists firebombed a bank killing 3 people. Head of the IMF Dominique Strauss Kahn sparked fears of contagion as he warned that leaders must remain “extremely vigilant” to the risk of heavily indebted countries like Spain and Portugal suffering the same fate as Greece. Meanwhile Moodys announced their intention to place Portugal on review generating concern it might be the next state to fall. Investors are unhappy with the lack of direction given by the ECB which has held back from the sort of liquidity injections used by the Federal Reserve and the BOE during the recent banking crisis.

   Sterling had a mixed day losing ground to the safe haven currencies like the Dollar and Yen and gaining against the crippled Euro. It made lows of 1.5067 against the ‘buck’ and 141.198 against the Yen during Wednesday’s trading. Whilst polls give the Conservatives a slim majority it is not significant enough to ward off fears of a hung parliament. UK economic data was good with UK BRC shop prices rising 2% and April construction PMI rising from 53 to 58 during last month.

   With Japan closed for trading the Yen traded thinly today but its safe haven role helped it make gains against most other currencies. It gained against the Dollar a little reaching lows of 93.539 and substantially against the Euro posting a low of 119.943 – down nearly 3 yen in a day! Demand may have increased off the back of poor economic news from China but news from Bloomberg that the S&P will look to Japan’s budget statement next month to determine whether a downgrade of their debt rating is warranted took the shine off an otherwise strong performance.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst