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Dollar weakness against both the euro and sterling dominated market sentiment Thursday as overnight escalation of tension occurred in the Middle East due to political unrest in Bahrain and Yemen. As a result, fossil fuel commodities acted as a driver for dollar weakness. With the coming of afternoon came weak US consumer confidence data, which did little to help the greenback out.


Sterling remained relatively flat against the euro whilst gaining ground against the dollar. The pound appears to be buoyed by general market expectations that interest rates are going to have to be hiked later this year to cap inflation. This has given some respite against the effect of this week’s negative employment data and higher than expected UK inflation. Although the UK economy starting to smell of ‘stagflation’ in the UK (stagnant growth along with aggressive inflation), current global macroeconomic factors seem to be offsetting any real negative pressure on the pound. The pound finished yesterday’s session unchanged against the euro and up 0.6% against the dollar.


The main factor affecting the euro yesterday was the latest Spanish bond auction. This raised over €2 billion in 10 Year bonds with the yield dropping to 5.7%. The liquidity in European debt markets seems to have halted the short term risks posed by the Sovereign debt crisis. The euro remained relatively flat against sterling and made gains of over 0.5% against a vulnerable dollar.


The dollar dipped against the board due to Middle East unrest, with further damage being dealt to dollar sentiment due to the poor consumer confidence data released in the afternoon. Today markets will eye Bernanke’s speech as traders look for clues as to what is to come with regards to the Fed’s future monetary path polity.