The U.S. Dollar advanced at the end of last week as risk aversion reigned in the market due to concerns that the sovereign debt crisis would spur a global financial meltdown. The greenback erased some of those gains versus the Euro as a meeting by the G20, held this past weekend in Washington, produced results that set investors temporarily at ease. Reports showed that international leaders have agreed to work together to solve the Euro-zone’s debt crisis and to come up with a plan that would increase investor confidence, despite a looming Greek default. They went on to indicate that they would work on a fund to permanently aid the region’s economy, while placing a “firewall” around Greece, Ireland and Portugal to prevent the crisis from spilling over onto Italy and Spain. This created appeal for risk in the markets. However, analysts expect the U.S. Dollar to continue to benefit from its refuge status as the Yen is under threat from another intervention, and as increasing concerns dampen risk appetite.
The Euro climbed against the U.S. currency on optimism that the E.U. officials will speed up a much-needed plan to stem the region’s crisis. European governments are under pressure from foreign officials and investors to do something right away and are currently exploring the idea of a permanent rescue program. The 17-nation currency also rebounded against the Yen on reports from Estonia’s central bank Deputy Governor, Ulo Kaasik, who confirmed that the European Central Bank is taking steps to avert a total meltdown. In the meantime, the Pound Sterling regained some of its value on Friday, as optimism returned to the markets on pledges that E.U. leaders would work together to prevent a global crisis. There was much talk about increasing the powers of the European Financial Stability Fund so that they could purchase bonds from secondary markets which boosted investor confidence in the region’s currencies.
The Yen dropped as risk aversion diminished following a pledge from the international community to deal seriously with the sovereign debt crisis and to prevent it from spreading to the rest of the world. Recent metrics showed that despite a drop in exports, Japan’s economy is withstanding the pressure.
Australia’s Dollar rose versus the greenback as investors sought a country with a strong banking system and relatively low unemployment. And New Zealand’s Dollar declined as reports showed its trade deficit widened more than anticipated.
EUR/USD- Leaders Bring Hope To Investors
The IMF meeting held this past weekend in Washington, DC delivered hope to the markets, as leaders from the international community expressed their commitment to work together towards solving the sovereign debt crisis. There was much talk about a three-pronged approach for bailing out the countries in need. Senior officials will take this week to examine the pros and cons of the fund they propose. According to other reports, there’s speculation that the ECB may reduce interest rates to aid the economy.
GBP/USD- Pound Recovers On Optimism
The Sterling rebounded towards the end of last week as optimism took over market sentiment once again. A pledge from international leaders to work hard on solving the Euro region’s troubles renewed confidence that a global financial crisis may be averted. On the economic front, BBA Home Loans rose above anticipations for the month of July. But despite the positive rhetoric and the better than expected data, the outlook for the currency remains dim on speculations that the Bank of England will further its QE program. According to economists, uncertainly about the country’s economy remains a strong factor that will certainly weigh on the Sterling.
USD/JPY- Yen Dips As Fears Ease
The Yen weakened against the U.S. Dollar as a pledge from the G-20 to work diligently at averting a world crisis eased tensions in the market. These promises were accompanied by gestures that they would do everything possible to solve the sovereign debt crisis in the Euro-zone. The markets slowed down their descent but continued on a downward trend as investors continued to worry over an impending Greek default as well as the Fed’s new policy.
AUD/USD- Aussie’s Advantages Attracts Investors
Australia’s Dollar gained versus the U.S. monetary unit as the country’s “rock solid” position in the global economy attracted investors. Analysts believe that the nation’s low level of unemployment and its stable banking system gave it a vantage point in these times of economic turmoil. Australia is benefitting from increased demand for iron ore, natural gas and coal from nations such as China and India, while its other industries are struggling.
Today’s economic calendar is light and shows that the E.U. will report on the German IFO Business Climate. The U.S. will release data on New Home Sales and the Chicago Fed National Activity. Lastly, Japan will issue figures on CSPI.