The Dollar gained against most currencies today, ending at 1.4612 to the Pound and 1.2533 against the Euro. Economic data from the US showed that Jobless claims had reduced by 4.000 but not as much as had been expected. There was some support for the Dollar from a weakness in crude oil which dropped below key support at 74.51 and resumed its downtrend. It is now believed $70 a barrel is quite possible.

   The Euro traded lower, ending the day on 1.2533 against the Dollar and 0.8582 against the Pound. Despite the 1 trillion in new EU stabilization measures investors had fresh concerns over the ability of European countries to introduce austerity measures whithout spoiling their fragile economic recoveries. Portugal’s leaders agreed further cuts to reduce their deficit by 2 billion euros and Spain has already announced a cut in civil servants pay by 5% as well as a loss of 13,000 public sector jobs.

   The Pound sank against most currencies ending the day at 1.4612 against the Dollar and 135.52 against the Yen. Investors sold on the concerns sparked by the worse than expected trade balance data from yesterday showing a widening gulf between exports and imports. They chose to ignore the more positive housing news, showing an increase of 9.7% YoY in house prices and the Nationwide Consumer Survey, which showed a higher than expected increase in Consumer confidence. Recent trade balance data has shown that imports jumped by 5 times the rate of exports and this cast fresh doubts over the ability of the UK to get itself out of the recession using an export driven model, particularly given the favourably weak pound. There were also concerns over Europe, as investors began to question whether the austerity measures being imposed on the fragile economies of many European Union states could derail their recoveries. Europe is the largest importer of British goods with 50% of UK exports going there. There is now a real fear that the market for these goods will shrink as the deep cuts take effect.

   The Yen strengthened against both the Dollar and the Euro finishing the day at 92.74 against the Dollar and 116.24 against the Euro. Economic data from Japan was surprisingly positive with a record current account surplus of 1.77 trillion Yen when 1.49 Trillion was expected and Japan ‘money stock’ up by 2.9% rather than the expected 2.5%. The results put paid to the theory that the recent strong Yen may be eroding exports and must reinforce investor perceptions of the Yen as a safe bet.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst