The euro has now officially stepped back behind the starting line drawn at the time of last week’s ECB meeting when President Trichet fired the monetary tightening starting pistol. A ratings downgrade for Spain today reminded investors that there is much unsettled business in the region and that to buy the euro on expectations over widening yield differentials could easily turn out to be a shot in the foot. While the ECB’s preordained rate increase was at first seen by some as a green light for an excursion above $1.4000 others feel that the action of the central bank is likely to crystallize the political stalemate and hamper any advance in the euro.
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U.S. Dollar – The dollar index is up smartly overnight as a confluence of factors come together to drive it higher. Although crude oil futures continue to decline following a surge in oil stored at Cushing, Oklahoma reported on Wednesday, worries continue to mount that the elevated level of energy costs coupled with the deteriorating state of geopolitics in the Middle East will weaken global growth. The yen and Swiss franc both rose as risk aversion stepped up and as equity buyers stopped in their tracks. Global benchmarks are once again lower on Thursday and with the S&P 500 index fast-approaching recent support the, stage could be set for a negative break lower that could accelerate a more negative view on the outlook for growth. Later this morning analysts predict initial claims data through last weekend will continue to show steady improvement in the labor market with an expected reading of 376,000 claims for first time unemployment benefits. The dollar index is 0.5% firmer at 77.08.
Euro – Following its decision to downgrade Greek government debt a week ago, Moody’s served up a plate of the same to Madrid. Adding insult to injury the ratings agency also left its outlook on negative watch for the Iberian nation where unemployment stands at above 20%. The euro didn’t take today’s news well and fell to $1.3805 before it could manage any sort of a rebound. German trade data for January was significantly better than expected, although the report was overshadowed by worries over the health of the union ahead. Government ministers meet on Friday as they prepare to make solid and lasting plans to address the lingering sovereign debt crisis before a deadline just two weeks away. Naturally, the lengthening crisis and the discord among members is of concern to investors whose fear is that failure for anything less than lasting resolve will set the euro’s fortune’s back to square one.