The Dollar closed down against the Euro at 1.2350 and fell against the Pound to close at 1.4333. The Dollar failed to gain much on risk aversion and US CPI dropped unexpectedly by -0.1% MoM – the first drop in more than a year. Some analysts have put Dollar strength down purely to speculation and its role as a safe haven rather than tangible economic factors. This may leave the Dollar vulnerable iin the future if investors decide once again to embrace risk.

   The Euro gained against most of its counterparts to close at 1 .2350 against the Dollar and 0.8583 against the Pound. Initially the Euro lost ground as German regulators introduced a ban of naked short selling of European Government Bonds. But there was a significant recovery on talk of coordinated intervention by the ECB and other major banks, including the Federal Reserve to stop depreciation of the Euro. SNB intervention in the EUR/CHF and heavy talk of flows favouring the Euro sent the pair skyrocketing from 1.4004 to 1.4307. Economic figures were positive showing an improvement in construction output and building activity. Many are wondering whether the Euro may have put in a temporary bottom.

   Sterling remains weak but on Wednesday it gained against the Dollar to close at 1.4333 but fell against the Yen to 131.57. Recently published inflation figures showed a jump in CPI to 3.7% this month as a weakened Pound and increased VAT raised the prices of many goods. At their recent rate decision meeting the governing board of the BOE all voted unanimously to keep rates at the same level despite the dramatic increase in CPI . The BOE has forecasted lower CPI in the coming years and believes ‘spare capacity’ in the economy will keep inflationary pressures down in the future, but more recently this assumption has been questioned, particularly as the Pound continues to weaken.

   The Yen strengthened against most currencies, closing at 91.79 against the Dollar and 131.57 against the Pound. The Yen continued to benefit from its safe haven status after the recent high volatility in the markets. The Japanese Cabinet Office issued GDP figures which whilst showing a gain of 1.2% in the last quarter were below estimates of 1.4% growth. YoY GDP growth was up 4.9% for the forth consecutive quarter – but still short of estimates of 5.5% growth.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst