Morning Foreign Exchange Report : GBP/USD and EUR/USD Rates Approach Multi-Month Highs as US Currency Suffers on Improving Risk Sentiment

March 22, 2011 - Written by John Cameron

STORY LINK Morning Foreign Exchange Report : GBP/USD and EUR/USD Rates Approach Multi-Month Highs as US Currency Suffers on Improving Risk Sentiment

The Pound Dollar exchange rate (GBP/USD) is 1.6304. The Euro Dollar exchange rate (EUR/USD) is 1.4229.

An air of normality returned to the currency markets yesterday following the dramatic events of recent days. Air Strikes on Tripoli continued again overnight, but investors do not appear to be perturbed by these; in fact the key indicators suggest that market participants are re-assured by the fact that the international community is taking positive action to bring stability to Libya.

A nuclear catastrophe appears to have been averted in Fukushima by Japanese authorities, with power being restored to several of the plant’s reactors over the last twenty four hours.

Turning to the structural side of the markets, investors have been further encouraged by actions by the G7 group of nations to actively intervene to weaken the Yen over the past two sessions. Similarly, in the Eurozone, the ECB’s steps to increase the scale and remit of the European Financial Stability Facility at the leaders’ summit ten days ago has helped to allay fears of a European sovereign debt crisis in the near-term, at least.

The net effect of the above events has been a global improvement in the appetite for risk. This manifested itself with strong performances in worldwide equities markets during yesterday’s session. Japan’s Nikkei 225 index led the way with a 3.56% gain on the day; the FTSE 100 and S&P 500 followed suit, closing 1.19% and 1.50% up on the day respectively.

The pick up in risk sentiment combined with oil prices which are once again approaching a 30 month high has caused sustained selling pressure on the US Dollar. The Greenback has traded perilously close to top of the range levels against both Sterling and the Euro in the last twenty four hours. The GBP/USD rate has traded a considerable volume above 1.63 in this period, bringing the key resistance level of 1.6344 well into view. Likewise, the EUR/USD rate is fast approaching its 14 month high of 1.4282. A close above these two key levels on GBP/USD and EUR/USD would send out a massively bearish signal for the Dollar.

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