Today's Currency Exchange Predictions - US Dollar Strengthening on Risk Aversion

11 Feb 2011 at 9 AM - Written by John Cameron

STORY LINK Today's Currency Exchange Predictions - US Dollar Strengthening on Risk Aversion

The political crisis in Egypt took an unexpected turn yesterday evening, with President Hosni Mubarak addressing the nation in a televised speech. Crowds of protestors massing across Cairo had expected Mubarak to confirm that he was stepping down, with immediate effect. Announcements to the crowds by military leaders to that effect had fuelled these expectations. Instead, Mubarak surprised spectators by announcing that he would not be standing aside – but that he would be transferring a limited amount of his powers to Vice-President Omar Suleiman. The situation now looks volatile with protest marches planned after Friday prayers across Egypt. Rumours abound that a military coup may take place which would have an uncertain outcome.

As the world’s safe-haven currency of choice, the US Dollar has benefitted from Egyptian political uncertainty, strengthening from 1.3744 against the Euro just after yesterday’s European close to currently stand at 1.3540 – a significant move. This flight to safety is also being fuelled by concerns over soft labour market figures released in the last week, particularly the Australian unemployment figure, released in the early hours of Thursday morning, which showed a complete halt to new full-time job creation in January. Last week’s US Non-Farm Payroll figure in the US also served to disappoint. A sell-off in world equities markets looks to be underway, triggered by China’s second hike in interest rates in the last six weeks which was effective from Wednesday. This has caused significant losses across Asian share markets. Dow Jones futures are pointing to a lower opening in New York later today, leading to further risk aversion. This is likely to cause gains for the Australian Dollar, New Zealand Dollar and South African Rand. The Yen and US Dollar are presdicted to be the biggest winners.

Elsewhere, in the UK the Bank of England maintained interest rates at their current record low of 0.5% and chose not to extend their Asset Purchase programme from its current level of £200Bn. Some analyst had predicted that the Bank might vote for an extension to the programme given the UK’s negative Quarter 4 growth figure. The fact that no extension was announced provided some support for Sterling.

In the Eurozone, sovereign debt fears continue to dominate. Portuguese borrowing costs soared to 7.6% yesterday, leading the ECB to step into the market to buy Portuguese bonds. The Euro is likely to suffer from this action over coming sessions with the Swiss Franc picking up some support as the nearest safe haven currency. Earlier today, German CPI figure came out slightly higher than had been expected. Today’s major data release comes this afternoon with the release of the Michigan Confidence Survey for February in the US. A worse than expected figure coupled with further downward movement in the World’s major stock markets would see the US Dollar gain further support.

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