Exchange Rate Predictions - USD, EUR, GBP, AUD, JPY, CHF

21 Feb 2011 at 4 PM - Written by John Cameron

STORY LINK Exchange Rate Predictions - USD, EUR, GBP, AUD, JPY, CHF

US DOLLAR

Analysts are closely monitoring the situation in Libya and the Middle East for pointers on future moves in risk sentiment. At this time, safe haven support for the Dollar has been limited with the greenback making limited gains against the Pound and the Euro during today’s European session. Crude oil continues to edge higher, which may weigh down the Dollar. Interest rate expectations are also suppressing the Dollar. NEAR-TERM OUTLOOK – NEUTRAL.


EURO

The German central bank today registered its objections to giving further powers to the ECB’s European Financial Stability Facility, opposing proposals to allow the EFSF to actively purchase individual Eurozone nations’ treasury bills on the bond market. This renews fears of a political fissure in the Eurozone, with Germany proving reluctant to assist its less affluent neighbour states. Last Friday’s comments by ECB Executive Board member Lorenzo Smaghi, suggesting that the ECB might have to hike rates sooner rather than later, have now been largely forgotten. Positive German manufacturing and confidence figures provided some relief this morning. NEAR-TERM OUTLOOK – NEUTRAL TO NEGATIVE.


POUND STERLING

The Pound traded sideways against the majority of the sixteen most-traded currencies today, as investors wait for the release of the minutes of February’s Bank of England MPC meeting, which are released on Wednesday. The market is factoring in 88 basis points of UK rate rises over the next 12 months. If the minutes suggest that any less than an imminent hike of 25 basis points, then Sterling’s drift may evolve into a downward move. NEAR-TERM OUTLOOK – NEUTRAL.


AUSTRALIAN DOLLAR

The Australian Dollar remains as risk sensitive as ever and has lost ground in early trading this week due to the flight to safety caused by political unrest in North Africa and the Middle East. Protests in Tripoli have continued today and a peaceful outcome looks unlikely. This suggests further weak trading for the Australian Dollar. The Aussie has also come under pressure due to China’s tightening of its monetary policy. China has raised interest rates twice in the last seven weeks and has allowed the Yuan to strengthen on the currency markets, whilst increasing the ratio of funds that Chinese commercial banks must keep on account with the central bank. NEAR-TERM OUTLOOK – NEGATIVE.


JAPANESE YEN

The Yen picked up support during the first session of the week with investors continuing to use it as a safe-haven option as fears over continued unrest in the Arab world escalate. Many analysts have suggested that Japan’s leading equities index, the Nikkei Dow, will continue to improve as the world economy improves throughout 2011. With the Yen traditionally having an inverse correlation with the Nikkei, this may not bode well for investors holding the Japanese currency. However, the recent paring of Yen strength has improved trading conditions for Japanese exporters, leading to renewed positivity regarding the Japanese real economy. NEAR-TERM OUTLOOK – NEUTRAL TO POSITIVE.


SWISS FRANC

The Franc has made gains in recent times thanks to its safe-haven status. Some analysts have even suggested that the Swiss currency is now the primary port of call in world markets during flights to safety, over-taking the US Dollar. Commentators suggest that current safe-haven movements of funds are very different to those of the financial crisis of 2008, which saw the Dollar make massive gains. Financial institutions now already hold considerable US Dollar assets and so are looking to diversify into other safe havens during times of crisis. Comments from the President of the Swiss National Bank, Philipp Hildebrand, suggest that he considers further strengthening of the Franc as beneficial in containing inflation, providing further support for the Franc. NEAR-TERM OUTLOOK – POSITIVE.

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