The Euro is successfully riding bursts of positivity, as the Euro gained against the dollar on the back of positive German import data. Yet this high was met by inflation alerts, with German import prices rising by 12%, boundaries need to be set in place to prevent price surges, a warning echoed by the European Central Bank President Jean-Claude Trichet.
President Obama’s State of the Union speech failed to reassure markets with the US dollar weakening today to accommodate market reaction. The speech lacked significant credibility and ingenuity to convince traders of any realistic plan to tackle Federal deficit. The impact of possible cuts in discretionary government spending was diluted by a call for investment in future projects. This balanced solution does have longer term benefits for the US but any expansion of the Federal deficit is likely to trigger negative market reaction.
Sterling rallied against the US dollar with information seeping into the markets, that two members of the Monetary Policy Committee supported an interest rate hike. However the rise in Sterling value may also be as a result of the drastic descent experienced by Sterling yesterday. This descent, the effect of poor economic data indicating a shrinking UK economy, triggered sterling to fall by 1% in its forex pairing with the US dollar. The slight rise today may have occurred because the markets are naturally re-adjusting, to what was a notably drastic fall.
The Aussie dollar came close to reaching parity against the dollar in its US pairing today. Incoming US data concerning Fed interest rate decisions, new home sales and the latest GDP reading, may lead to a boost in risk appetite. With the shadow of Chinese tightening measures looming, the US data may provide a welcome respite for traders wishing to short the pair. The concept of risk aversion and risk appetite can be pushed further into the US dollar and Yen pairing, with positive economic data fuelling risk appetite and feeding traders away from the more ‘comforting’ Yen.
