Gold rockets after U.S. ratings outlook downgraded

This morning, the US dollar was seen as benefiting from the woes of the euro. The latter fell victim to fresh speculative selling in the wake of rumors [later denied] that Greece was seeking a debt restructuring deal with the EU. The common currency lost half a percent against the greenback in the wake of a win by the anti-bailout “True Finns” party in Finland on Sunday, and then it proceeded to lose almost another half a percent when the Greek rumors started to make the rounds among currency traders. Technicians have pointed to repeated failures of the euro at $1.45 on the charts and have also pointed to the oversold condition of the US currency in recent trading sessions as a potential pivot point in the markets.

The greenback might also receive a helping hand this week from comments that were made by Treasury Secretary Geithner regarding GOP cooperation signals on the issue of raising the US’ debt limit. Appearing on NBC’s “Meet the Press” yesterday, Mr. Geithner stated that he was in possession of assurances from the Republican leadership that the current debt limit ($14.3 trillion) will be lifted when it reaches its maximum by no later than May 16. Thus, emphatic declarations of an imminent US default and attendant demise of the dollar will once again have to be placed into deep-freeze by alarmist newsletter producers. For the moment, the dollar’s buyers might have to contend with the no-so-hot S&P outlook.

The weekend brought us a further tightening of bank reserve requirements by Chinese authorities. The on-going anti-inflation combat in the country pushed reserve ratios half a point higher, to a record level of 20.5% effective on the 21st of the month. The move represented the potential precursor to a fifth interest rate hike by the PBOC; one that might come as early as next month. The latest rise in China’s foreign exchange reserves – to the $3 trillion mark – is underscoring the excess of cash present in the world’s second largest economy.

The PBOC has publicly stated that it aims to “remove the monetary factors that are related to inflation.” The G-20 summit over the weekend brought assurances that certain economies will now face a more intense level of peer review of their economic and monetary policies in a concerted effort to avert the unraveling of the emergent global economic recovery. The G-20 represent-in aggregate-85 percent of the world’s economy, while seven nations among the group each contribute more than 5% to the group’s cumulative GDP. The aforementioned policy focus will most likely concentrate on the “too large to ignore” economic powerhouses of the US, Japan, France, Germany, the UK, and, of course, those of China and India.

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