Euro – Despite the positive weekend discussions that renewed appetite for the euro, the single currency suffered on Wednesday following a Moody’s downgrade for Portugal that left its credit rating four notches above junk. The ratings agency cites the nation’s challenge in solving its debt crisis as the reason for the downgrade. Moody’s says that GDP is expected to decline this year and the country faces only a modest expansion at beast. For several months now it has become apparent that Portugal will follow the footsteps of Greece and Ireland in needing a bailout. However, it’s also become the popular view that this time the bailout is something of a litmus test for the EU. The unbearably high cost of government borrowing is unsustainable but it seems investors looking for a bailout seem willing to wait until after lawmakers have given one final push towards finding resolution for the stability fund. The euro was weakened by the downgrade today as a reminder that there remain risks from the sovereign crisis. In early New York trading one euro bought $1.3942 having earlier reached $1.4000.
British pound – The negative sentiment towards the euro currency on account of the Portuguese downgrade also weighed on the pound, which recently traded at an unchanged $1.6080 against the dollar. Earlier the currency jumped in response to a sharp dip in jobless claims during February. The claimant count remained steady at 4.5% as jobless claims dropped by 10,200 when investors were primed for a rise in the total. The ILO measure of unemployment in the three months to January rose by a notch to 8% as more public sector workers lost their positions at the end of the fourth quarter. The pound made gains on the surprise number as analysts immediately put the report in the bullish camp. However, inside the report the reading of youth unemployment remains high while the prospect for public sector workers remains dim as government announced cuts don’t kick in until the current quarter. The pound understandably outpaced its continental colleague rising to 86.64 pence per euro.
Canadian dollar –The Canadian dollar faced a wave of selling on Tuesday but it seems that the tone is more favorable by midweek. The unit reached a panic low at $1.0025 a day earlier but continued to recover today to $1.0175. Later on Wednesday the latest manufacturing sales data from January is due to show a jump in activity from 0.4% to 1.0%. While the focus will likely remain on events in Japan, investors in the oil patch are watching ugly developments in Libya where civil war seems to be favoring its enraged leader who earlier in the week won a huge victory against rebels. Crude oil prices continue to rebound this morning as a result, further underpinning the appeal of the loonie.
Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC
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