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USD strengthens as global sentiment sours

USD strengthens as global sentiment sours

After recent weakness against many of the majors, the Dollar is finally back in vogue it seems, at least looking at its performance over last week and into this week. New and fresh synonyms for ‘risk aversion’ and ‘risk appetite’ are becoming increasingly difficult to fabricate  when discussing the Dollar over recent weeks, and yesterday’s movements provided little in new material to write about. Global growth concerns have returned to the foray  and such a drop in risk appetite was responsible for the broad buying of Dollars across the market, the Yen also benefitting from this.
 
A broad spate of warnings contributed to this. Yesterday, the normally hawkish Fed Governor, Hoenig said that the US recovery was abnormally slow. Then, overnight the EU’s Rehn said that the Asian and US slowdown would have a serious negative impact on the Eurozone economy. Meanwhile, Moody’s have warned that slow economic growth and austerity measures may have negative implications for some sovereign ratings. 
Furthermore, the fears of a growth slowdown has seen rate hike expectations for commodity currencies being wound back, reducing support for the AUD, NZD and CAD, though the AUD has recovered slightly from its lows yesterday morning that followed the announcement of an Australian hung parliament.
 
Sterling has slipped back this morning following an interview with new MPC member Martin Weale in which he referred to the Bank of England’s August Inflation Report as ‘putting a significant chance on the economy contracting over a four-quarter period’. As a point of fact, the Bank’s forecasts put an 11% probability on the year-on-year rate of growth being negative in 2011 Q2. But equally they put a 13% on growth being above 4% over the same period – emphasising perhaps the uncertainty on the economic outlook rather than just directional risk.
 
It’s a fairly quiet day on the data calendar today. The superb German GDP figures from 2 weeks have remained unchanged after a revision, Eurozone industrial new orders have recorded strongly, whilst existing home sales figures for the US is the only remaining data release of note. Markets may watch this keenly as the strength of the US property market is again in focus.

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