The Dollar shot up during Thursday’s session bringing Sterling down to 1.4708 and reaching 1.2518 against the Euro. More positive economic data helped as jobless figures showed the number of unemployed was down – but not as much as expected. Q1 productivity rose and Q1 labour costs were down more than expected. Overall, though, Dollar gains could be attributed as a flight to safety as the markets experienced one their rockiest days in history.

   The Euro continued its decline reaching lows of 1.25 against the Dollar and 110.56 against the Yen. The Euro dropped 9% against the Yen from yesterday’s lows of 122.63! News of strikes and riots in the Greek capital and that the Swiss National Bank (SNB) pulled its intervention support bid for the euro were seen as factors. The ECB rate change meeting announced no change keeping rates at 1%. Many are now calling for the ECB to intervene in the Euro zone debt crisis with a programme of quantitative easing like that used by the Federal Reserve and the Bank of England during the Banking crisis but during a press conference afterwards no such measures were mentioned. Jean-Claude Trichet, ECB president, managed to stem loses for a while with the rallying cry: ”Greece will not be allowed to default.” The Euro also stabilized with the actual passing of the austerity bill in the Greek parliament although fears of contagion continue to hamper any kind of serious recovery.

   The pound lost ground today reaching lows of 1.4708 against the Dollar and 129.93 to the Euro, another massive drop of 12 Yen from yesterday. Poor economic news released showing a slow down in services PMI was to blame as was continuing election uncertainty and a flight from Euro cross trading.Investors are now anxiously awaiting the election results on Friday 7th, today.

   The Yen strengthened across the board even against the strong Dollar, reaching 88.25 against the Dollar from a low of 93.26 yesterday. It benefited from its safe haven status as the flight from the euro continued and commodity currencies began massive deleveraging. The Yen gained over 9% during trading against the Euro! Analysts must be concerned however that this enormous boost could have an impact on exports. An overly strong Yen cannot be good for the economy. With the S&P watching Japan closely for signs of default and quite serious social and domestic economic problems and deflation; this must be a fearful time for the Japanese. The question I am asking myself is could Japan be the next Greece, if the trend in Yen strength continues and exports in an export led economy fade?

Analysis prepared by:

Joaquin Monfort
Forex4you analyst