Foreign Exchange Insight : Dollar Surges as Global Risk Appetite Ebbs Away on Greece's Debt Woes

June 17, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Insight : Dollar Surges as Global Risk Appetite Ebbs Away on Greece's Debt Woes

The Pound Euro exchange rate (GBP EUR) is 1.1387. The Pound Dollar exchange rate (GBP USD) is 1.6113. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5314.

The US Dollar made further gains on the currency market yesterday, as global investors’ appetite for risk continued to ebb away.

All of the world’s leading stock exchanges registered losses on the day, in response to continuing uncertainty regarding Greece’s ability to meet its debt commitments. The increase in global risk aversion has been in place for some time now, as evidenced by movement on the benchmark S&P 500 equities index, which has dropped from a high of 1348 on the first day of June, to trade down to a low of 1257 yesterday. This represents a retracement of over 7%.

The Greenback was further helped yesterday, with the release of May’s Building Permits figure, which showed a monthly increase of 8.7% in the number of permits issued, against expectations that the number would have contracted by 1.1%. This leading indicator of US construction sector activity bodes well for US economic growth levels for the second half of 2011.

In the Eurozone, the markets were encouraged when Greek Prime Minister George Papandreou confirmed that he was to remain in office, following reports earlier in the week that he was set to stand aside to allow a ‘unity coalition’ government to take control.

Greece’s parliament must pass stringent spending cuts and undertake a widespread privatisation programme in order to receive its next tranche of bail-out funds from the IMF and analysts feel that there is a higher chance of this happening if Greece has a clear leader in place. Meanwhile, rioters took to the streets in Athens yesterday to protest against the proposed cuts and the yield on two year Greek bonds rose to an astronomical 28.6%. The Greek situation remains febrile.

Elsewhere, Retail Sales figures released in the UK yesterday showed a dramatic drop of 1.6% in British shop sales last month. This figure was far worse than analysts had expected and caused downward pressure on the Pound on the session, with both the GBP USD and GBP EUR rates closing down on the day at 1.6159 and 1.1380 respectively.



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