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USD up everything else down

USD up everything else down

Trading on the markets was dominated by escalating fears that Spain will need a bail-out package to support its banking sector. As investors went in search of safe-haven assets the USD seemed to be the main beneficiary. The euro was hit hard and has dropped to its lowest level against the US dollar in almost two years. EUR/USD touched a low of $1.2360 yesterday and remains below the $1.24 level early this morning.

The mood on the markets was not lightened by US pending home sales which reported a 5.5% fall in April. This marked a four-month low and undermined some of the recent optimism that the US housing market was finally over the worst.

The decline in GBP/USD has continued with the currency pair hitting a new four-month low yesterday of $1.5472. The move is down from the cycle peak of $1.6302 reached at the end of April. While some of this weakness is a function of ongoing US dollar gains from a ‘risk-off’ liquidity perspective.

Sterling has also lost some of its shine. This stems from recognition that the UK is clearly not immune from the Eurozone crisis and an increased risk that in a technical recession another round of Quantitative Easing from the Bank of England is more likely.

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