USD falls slightly, is EUR poised for another fall?
The Euro appears to have found temporary reprieve over the last few days against the Dollar. EU finance ministers are continuing their two day meeting today, with markets thus far disappointed at the apparent lack of any concrete plans to quell the ever expanding debt crisis. Any such disappointed failed to impact on the Euro against the Dollar however. Renewed speculation that the US central bank will further extend its support to the economy has begun to rear its head. The Dollar has fallen to a 2 week low against the Euro, and a 3 week low against the Yen, dragged down by talk that the Fed may conduct further bond purchases. Friday’s disappointing US non-farm payrolls report is continuing to further weigh on the Dollar.
Elsewhere, Australia’s central bank kept its key cash rate unchanged at 4.75% after its meeting finished overnight. The announcement was widely expected following a pre-emptive hike last month. Markets now expect the central bank to leave rates on hold for a few months to come. As a whole, the Australian economy is soaring in comparison to other G20 nations. The terms of trade are at their highest level since the early 1950s, and national income is growing strongly as a result. Meanwhile, private investment is beginning to pick up. Employment growth has been very strong and growth in wages had picked up somewhat. Reflecting higher commodity prices, as a commodity-centric economy, alongside monetary policy expectations, the AUD is almost the standout best performing currency over the last six months.
Today, with the EU finance ministers meeting in Brussels there continues to be event risks emanating from the obvious disagreements amongst eurozone governments on the best way of tackling the sovereign debt crisis. The German government appears to have firmly dismissed talk from the IMF that the size of the bailout fund should be increased and has been lukewarm (at best) to the idea of creating some sort of joint eurozone bond instruments. Amongst these differing views the best outcome from the finance ministers meeting is probably no change from the current policy stance. UK industrial production figures have come in slightly lower than expected, whilst manufacturing production figures have shown a solid uptick compared to expectations. The net result is largely sterling-neutral against the other majors.