Royal Alliance Capital Currency Review

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) November 2, 2011 -- The euro gained versus sterling after European leaders agreed further measures to try to stem the debt crisis.

In a ‘three-pronged’ agreement, these measures included plans for private banks holding Greek debt to accept a 50% loss to help reduce Greece’s debt burden. In addition, European banks are to raise €106 billion to protect them against possible future losses.

The euro zone’s communal bailout fund, the European Financial Stability Facility, is set to be boosted to €1 trillion. However, the European Central Bank (ECB) resisted calls for it to be involved in these latest efforts to restore market confidence, whilst Italy’s borrowing costs still went on to reach a record high on Friday.

Adding to a more optimistic mood, US Gross Domestic Product (GDP) expanded at an annualized 2.5% pace in the third quarter. Led by business investment and strength in spending on services, this was a marked improvement on the disappointingly weak 1.3% and 0.4% economic growth in the second and first quarters of 2011. However, the US dollar generally struggled throughout the week, with sterling ending the week above US$1.60 for the first time since early September.

The Japanese yen advanced to a post-war high versus the US dollar, despite the Bank of Japan boosting its asset purchase program by ¥5 trillion (equivalent to over £40 billion). The measures were intended to help thwart the currency’s rise. A government official was later reported as commenting that additional steps might be taken, suggesting the government might intervene to try to weaken the yen as it had done in March and August. In fact, Japan intervened early this morning (Monday 31 October), helping to push sterling from ¥122 to ¥127.

The Australian and New Zealand dollars were buoyed by improved investor risk appetite and optimism about the global economy’s prospects. The Reserve Bank of New Zealand kept interest rates at 2.5% as had been widely expected, although the accompanying statement suggested it sees the next move as likely to be upwards. Australian consumer price inflation was lower-than-expected during the third quarter, which prompted some speculation the Australian central bank might cut interest rates at this week’s policy meeting.

The Canadian dollar fell sharply after the Bank of Canada kept interest rates at 1% and noted a diminished need to withdraw policy stimulus.

There were few UK economic announcements to direct the pound. The number of new mortgages issued fell in September, whilst consumer confidence waned in October. More encouragingly, healthier-than-expected current account data suggested the economy’s progress in re-balancing towards higher exports was further forward than previously thought.

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