The Dollar had a mixed day, rising against some currencies but falling against others. It traded higher against the Euro after the ECB published a report with a negative outlook for European banking and there was another sell-off of the single currency. It was further supported by positive manufacturing news with the ISM manufacturing index posting a higher than expected increase. The Dollar fell, however, against a rapidly strengthening Pound which rallied after some very positive economic news was released in the UK. USD/JPY slipped 0.02% to reach Y91.25 to the Dollar; EUR/USD closed at $1.2230 to the Euro and GBP/USD finished the session up at $1.4648 to the Pound.

   The Euro sold off on Tuesday after several reports highlighted weaknesses in the economy. Figures released showed an increase in Euro zone unemployment from 10 to 10.1% and the ECB published its semi-annual financial stability report, which stated European Banks are facing as much as 195billion in write-downs (loan losses) over the next 2 years. According to the report, the financial stability of the Euro zone was under threat from both persistent overspending in the public sector and the possibility of a negative feedback between the financial sector and public finances. The only positive news came from Germany where unemployment dropped more than expected by 45k. Although this contrast only served to highlight further how much worse problems are in the rest of Europe. EUR/JPY slipped down to Y111.22 to the Euro, and EUR/GBP fell sharply to £0.8346 to the Euro.

   The Pound rallied after the release of positive economic news increased evidence that a sustainable recovery is underway. A report published by the Land Registry showed a dramatic 8.5% increase in house prices YoY – the fastest pace since September 2007 - although this may be partly explained by the extreme lows experienced this time last year as the recovery was only in its early stages. More positive news came in the form of manufacturing PMI, which stayed at its 16 year high of 58. GBP/JPY closed up at Y133.20 and GBP/USD rallied to $1.4648 to the Pound.

   The Yen rose on deepening Euro zone debt fears after the ECB published a report with a negative outlook for European Banks citing 195billion in bad debt write-downs over the next 2 years. Then poor Chinese manufacturing figures and the fear of intervention by the state using a property tax to cool the growing property bubble lead investors to seek a safe haven once again. EUR/JPY closed up at Y111.22 and USD/JPY closed down at Y90.94 to the Dollar.

Analysis prepared by:

Joaquin Monfort
Forex4you analyst