The Dollar had a strong day on Friday, finishing at 1.2358 against the Euro and 1.4539 against the Pound. Risk aversion led to buying of the Dollar and Gold both of which rose.Economic data released on Friday showed a steady growth in Retail Sales (ex autos) and Industrial Production. These two sets of figures continue the trend of positive economic data releases from the US and were interpreted as further signs that a recovery is under way. This optimism, however, was tempered by fresh fears that the sovereign debt crisis might have much more far reaching effects and implications than previously thought. In equities for example Sony released poor earnings figures blaming a slow down in Europe as the cause. If the ill effects of sovereign debt spread to the US they may begin to impact on the recovery as most companies rely on international markets for their products.

   The Euro remained in the spotlight falling on Friday to reach lows of 1.2339 against the Dollar and 0.8502 against the Pound. The sell off was due to fresh fears about the ability of some of the more fragile Euopean economies to withstand the fierce austerity measures currently being instituted in an attempt to cut their debts. Earlier in the week in Spain, 13,000 public sector workers were made redundant, with others forced to take a 5% pay cut as their government began introducing such measures. There is a fear too that such measures may be so extreme they cause public unrest similar to that which has been plaguing Greece recently.

   The Pound continued its orderly decline ending down against the Yen at 134.40 and lower against the Dollar at 1.4539. Earlier fears that a hung parliament would yield a weak coalition government, unable to push through the fiscal reforms lessened as the two parties involved have so showed a united front, but recent poor economic data including rising unemployment and a widening trade balance have contributed to uncertainty surrounding the strength of the UK recovery.

   The Yen rose against a basket of currencies on Friday and outstripped the Dollar to which it closed at 92.44 whilst it finished the week at 114.38 against the Euro. The Yen continues to benefit from safe haven status as other currencies grow more volatile. Strong economic data showing a better than expected current account surplus has helped support the Yen although the outlook could change as concerns over the burden of Japan’s sovereign debt increase.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst