Dollar off 15-month lows as pound, euro take hit

Euro – It’s beginning to look a lot like lawmakers will fail to agree on further measures to increase the lending limit of the financial stability fund by the weekend. The negotiations are likely to be dragged through to the early summer. An earlier agreement to boost the lending capacity from €200 to €500 billion might be enough to prevent a significant decline in the euro, but the reality of unresolved sovereign debt burdens is also likely to contain a major move higher in the meantime. The single currency has come off the boil again coinciding with the widely predicted demise of the Portuguese government whose opposition don’t want any part of the crippling austerity measures. Should a vote against occur today it would likely cause a national election. The country is one step closer to requesting a financial package from its regional partners and although the euro is slightly weaker in sympathy with this prospect, it is remarkably steady given the prospect of further sovereign debt torture for investors in coming weeks. The euro currently buys $1.4129 backing off gains more than a penny higher on Tuesday.

U.S. Dollar – With such a dull and largely negative flow of news the dollar index is magically higher on the day. The index measuring the greenback’s value against six major trading partners stands at 75.76 having retreated from its weakest level in 15 months earlier in the week. The resumption of dollar weakness earlier in the week comes as risk appetite returned and as investors breathed a collective sigh of relief that Japanese affairs were no worse than feared.

Aussie dollar – The tighter monetary stance adopted by the Peoples Bank of China as it attempts to squeeze inflation and cool growth has weighed somewhat on risk appetite in the Pacific region. The less positive news out of Japan in the last day caused investors to either take some profits after a spectacular Tokyo rebound or prepare for renewed selling in the days ahead. The cooler tone to risk spilled over into Asian stock prices and weakened demand for regional currencies. Investors were unprepared to drive the unit higher than Tuesday’s peak leaving the Aussie languishing at $1.0097. Thursday brings the semi-annual Financial Stability Review on which investors will draw on the authorities latest economic assumptions.

Canadian dollar – The loonster failed to recapture its pre-retail sales glory and continues to tread water this morning against the greenback. Today the local dollar buys $1.0183 U.S. cents and looks like it has the potential to at least $1.0150 should equity prices soften further than pre-market futures indicate. Currently the Canadian dollar doesn’t seem responsive to rising crude oil prices, which have broken $105 per barrel in early midweek trading.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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