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Today's Currency Exchange Predictions - Dollar Trends Weaker as Appetite for Risk Picks Up

February 14, 2011 - Written by John Cameron

Risk sentiment in world markets has swung again this morning following the resignation of Egyptian President Hosni Mubarak late on Friday night after an eighteen day popular uprising. Mubarak had surprised political spectators by failing to give up his post earlier last week, leading to fears of a fully-fledged military coup in the Arab state. The country will now be governed by a military council for a maximum interim period of six months, after this time the council will pass power to a democratically elected government. A smooth transition of power now looks to be the most likely outcome in Egypt.

The markets have responded positively to these developments, given the key strategic role that Egypt holds in the world economy. Although Egypt is not a major oil producer, its control of the Suez canal means it plays a vital part in the smooth delivery of crude from the Arab world to Western consumers. Crude oil prices tumbled by over a Dollar in late trading on Friday as relief over Mubarak’s decision spread. The turnaround in risk sentiment has also caused the US Dollar and Yen to lose ground as market-makers adjust their positions.

Elsewhere, world equities markets have fared well since the Egyptian crisis came to a head - the Dow Jones in New York finished up by over a third of a percentage point on Friday and the Nikkei 225 has opened up strongly, trading up by 1% by the middle of today’s afternoon session. This rally is partly due to the Egyptian situation, but is also fuelled by some better-than-expected growth data which was released in Japan at the start of the Monday session which showed that the Japanese economy shrank by an annualised 1.1% in quarter four of 2010 against previous expectations of a contraction of 2%.

In Europe, another German contender for the ECB President’s post has withdrawn from the race. Former Finance Minister, Peer Steinbrueck has followed Axel Weber in removing his name from the list. Both men were known for a hawkish stance on inflation; Steinbrueck‘s decision is likely to further weigh down the Euro during today’s session. The Eurozone industrial production figures released this morning will provide further directed for the single currency, with speculation in the markets hinting that these numbers may be negative following the recent disappointing data emanating from the German manufacturing sector. Continuing fears over the servicing of European sovereign debts, following the ECB’s intervention to buy up Portuguese bonds on Thursday, will also provide concerns for analysts.

With a relative lack of economic data to provide stimulus, expect price action in the major currency pairs to be determined by the waning appetite for risk in world markets.
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