After yesterday’s statement from the S&P ratings agency, indicating that the outlook for the US ratings had moved from neutral to negative the market jumped to a high of 1.6329 before retracing all the way to a low of 1.6165. The market now sits back above 1.63 and it would appear that yesterday’s volatility was little more than a ‘spooked’ market unsure of exactly how to react.
It is likely that we will see a continued weakening of the US Dollar due to the current ultra loose monetary policy seen from Fed. If the current trend continues the market could be heading back towards 1.65 in the next fortnight.
The World Bank released a report today that indicated the pace of growth amongst new European member states would likely accelerate throughout 2011 and into 2012. This has helped the Euro pair back some of its losses this week. The Euro has suffered from ongoing concerns this week over sovereign debt risk and the fear that Greece could potentially default on their loan repayments. This has sparked concerns that the problems could spread elsewhere to other European member states.
At the moment thanks to Chinese investor’s willingness to buy into European debt, the Euro has managed to find some support. The single currency is however still skating on thin ice moving forwards from here. There is only so much higher yield expectations can benefit a the currency before selling pressures overcome current price action to force a retracement back towards the yearly average at 1.17.
The Euro also benefited from Markit PMI figures in trade this morning. These figures continue to show expansion and have come in slightly better than expected. We expect a period of consolidation with a lack of European data due for release ahead of the Easter weekend from here. News of interest from the UK however comes in the form of the minutes from the MPC meeting earlier this month. The expectation is for another 6-3 split yet any deviation from this could spark a substantial market reaction.
