Posted March 09, 2010
The UK pound and euro struggle against the dollar Tuesday. Investors turn to risk to sway the market. Fitch Ratings also affect currency markets today.
The US dollar moved higher against the UK pound and the euro on Tuesday. However, some of its gains were lost as investors turn to riskier assets. Ratings agencies issued warnings Tuesday about the deteriorating credit quality present in Europe. Due to these warnings, many investors looked to the dollar and the yen for protection.
There was no new data released on Tuesday to provide any additional stimulation for investors in terms of the economy. As a result, investors turned towards risk to help gauge investment decisions. The broader tools of stocks, commodities and risk appetite were in use instead by the currency markets throughout the day.
Later in the day, the Dow Jones Industrial Average saw improvements in trading. In addition, a rebound in crude oil futures helped to push the dollar to lose some of the gains it made overnight.
Late Monday, the UK pound stood at $1.5063 but by Tuesday late afternoon, it moved to $1.4999. The euro moved from $1.3630 to $1.3603. The dollar moved from Y90.26 to Y90.01. The dollar went from CHF1.0736 to CHF 1.0753. The euro moved from Y123.09 to Y122.43.
Sterling performed poorly for the second day. On Tuesday, it dropped overnight to a one-week low against the dollar. The weaker UK economic data release helped to trigger this poor performance today. However, the Canadian, Australian and New Zealand dollars were higher against the US dollar by Tuesday afternoon trading. This is a rebound from earlier weaknesses in the day.
The euro weakened against the dollar, yen and the Swiss franc. In that regard, the euro moved to its lowest level in the past two weeks. The Swiss National Bank did not seem to react to the news and no mention of an intervention to counter the franc’s appreciation.
Euro in the Short Term
The euro will continue to benefit in the short term from the swings in investor appetite. However, this is not likely to offer any long-term benefit to the euro since the currency is likely to remain vulnerable because of the sovereign debt in several of the euro zone countries.
Initially, the information released on Tuesday regarding Portugal’s fiscal difficulties and the UK’s fiscal concerns by Moody’s Investors Service and Fitch Ratings caused investors to turn away from these currencies. After the release of weaker UK economic data, the sterling further suffered.
Fitch Ratings said on Tuesday that Portugal’s move to fiscal consolidation is a concern. If there is evidence of insufficient consolidation, that could lead to the ratings organization downgrading the country’s rating from AA. The ratings organization placed Portugal’s AA rating on a negative watch as long ago as last September.
Fitch Ratings also reported that the deterioration in the UK’s sovereign credit profile has been within the tolerance level of triple A rating. The organization did report that the country’s plan to cut the deficit by half within four years is not fast enough for the organization. Fitch Ratings said that the UK economy’s outlook was uncertain, which is a source of concern in regards to the country’s rating.
In other currency news, the Russian ruble rose to 34.53 against the euro dollar basket. This is a 14-month high and a gain of 0.3 percent.