further interest rate cuts by the ECB

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Pound Sterling

The Pound has risen to strike a three-and-a-half year high against the Euro as investors continue to worry about the growing risks to Spain and Italy’s finances. As a result, sales of the single currency increased and investors sought refuge in the relatively safe assets of the UK. Some of the renewed Euro selling came after the release of a Wall Street Journal report that the European Central Bank favoured imposing losses on senior bondholders of the most severely troubled Spanish savings banks, a contrast to 2010 when it took a position that senior bondholders in bailed-out Irish banks should not suffer losses. The ECB declined to comment on the report.

The continued uncertainty about the Spanish banks’ bailout package along with expectations of further interest rate cuts by the ECB is putting pressure on the Euro and more losses are expected against the British Pound.

The Pound is trading in the region of 1.272 against the Euro and 1.553 against the US Dollar.

US Dollar

The Dollar is under pressure ahead of a week full of important economic data releases and the Federal Reserve chairman Ben Bernanke’s latest testimony. All eyes will be on the Fed Reserves publication of its Beige book tomorrow to see whether the bank is planning further monetary stimulus.

The ‘Greenback’ has fallen close to a four week low against the Japanese Yen as investors regard the Japanese currency as the safest option ahead of the Feds release. The Dollar fell to 78.97 Yen, its lowest level since the 20^th of June. Against the Euro it is trading in the region of 0.818 and against the Pound it is at 0.643.

The Euro

The Euro remains hovering just above a new two year low against the US Dollar ahead of a week of important economic reports for the region. Today and tomorrow sees the release of inflation data and reports for CPI and economic sentiment.  Investors are still fretting over rising yields on peripheral Eurozone debt and as a result we have seen the Euro remain under pressure versus ‘Sterling’. It fell as low as 78.55 in early trade this morning – its lowest level since 2008. But, it’s recovered somewhat and is now trading in the region of 78.66.

The region’s leaders are not helping the currency after the German Chancellor Angela Merkel announced that she hasn’t softened her approach on austerity, her speech caused investors to seek safe havens elsewhere as growth remains virtually non-existent across the single currency.  The Euro could see some gains however, after it was revealed that the German high court will announce its decision on whether the bailout scheme agreed upon three weeks ago is legal under German law. If the court finds in favour of the bailout terms then we should see the currency strengthen. Currently the Euro is trading in the region of 1.222 against the US Dollar.

Australian Dollar

The ‘Aussie’ has started the week trading at a respectable level against the US Dollar after reclaiming some of the losses it made last week. At 6am this morning the currency hit the 1.023 mark before slipping to the region of 1.022. The strengthening comes after the release of China’s GDP data for the second quarter of 2012. The figures were better than many analysts were predicting and as a result the commodity based currencies made gains. Against the Euro the ‘Aussie’ is trading in the region of 0.836, against the British Pound it is trading in the region of 0.657.

New Zealand Dollar

The ‘Kiwi’ remains little changed from the levels it was trading in at the end of last week. It has seen a small rise as it follows the ‘Aussie’ rise thanks to China’s latest GDP data release. Many investors are waiting to see the outcome of tomorrow’s consumer price index release. New Zealand consumer prices rose 0.5 per cent in the three months ending in June, unchanged from the first quarter.

That would see annual inflation slow to 1.1% from an annual pace of 1.6%, just within the Reserve Bank’s target band of between 1% and 3 %. Against the US Dollar the ‘Kiwi’ is trading in the region of 0.7961 and 0.512 against the British Pound. Against the Euro it is in the region of 0.651.

Canadian Dollar

The ‘Loonie’ could find itself come under selling pressure this week after the nation’s central bank announces its latest interest rate announcement on Tuesday. Everyone is expecting the bank to choose to keep the current of rate of 1% as a reflection of the slowing global economy, what investors should be looking for is the bank’s commentary on how they think the Canadian economy is set to perform. If the bank says that it is cutting its economic forecast then we can expect the currency to make losses against a basket of currencies. Currently the currency is trading in the region of 0.985 against the US Dollar, 0.806 against the Euro and 0.634 against the British Pound.