Euro Rises Despite Spain’s Rating Cut | IFCM UAE
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Euro Rises Despite Spain’s Rating Cut - 19.10.2011

US Dollar Asian stocks were mostly higher on Wednesday, following US markets. The dollar extended gains at first yesterday, but lost ground in the aftermath, as positive news from Europe limited demand for refuge. Yesterday the Federal Reserve Chairman Ben Bernanke said the central bank might use communication policy tools more intensively in the future. He said that “The FOMC continues to explore ways to further increase transparency about its forecasts and policy plans” and underlined that “Forward guidance and other forms of communication about policy can be valuable even when the zero lower bound is not relevant, and I expect to see increasing use of such tools in the future.” Today we are expecting September US inflation data reading. According to preliminary estimations, US consumer prices may have risen by 0.3%, following a 0.4% gain in the previous month. In annual figures that would mean that prices rose by 3.8%, while the core measure, which excludes volatile food and energy accelerated to 2.1% from 2%. The dollar index, which tracks the unit against a basket of six US major trading partners's currencies, climbed yesterday from a one-month low 76.44 to 77.55, but fell below 77 in Asian trading hours today. Euro The euro strengthened today against the dollar, the yen and the frank, reversing losses in the previous two days. Bloomberg informed that the currency appreciated after the Guardian said Germany and France have already agreed before European leaders meet on October 23 to increase the 440-billion euro European Financial Stability Facility to 2 trillion, as well as supported the plan to recapitalize European banks. However, yesterday the German Chancellor Angela Merkel said that the coming European Union summit will be an “important step,” but not the final in tackling the debt crisis. “These sovereign debts have built up over decades, so they won’t be ended with one summit,” but “will require tough, long-term work.” The single currency appreciated today to 1.3832 against the greenback from yesterday’s low at 1.3652 despite Moody’s Investors Service cut Spain’s credit rating for the third time since June 2010. The rating was reduced by to levels from “Aa2” to “A1” while the outlook remained negative. “Even if policy action at the euro-area level were to succeed in the short term in returning some degree of normality to bank and sovereign debt markets in the euro area, the underlying fragility and loss of confidence is deep and likely to be sustained,” according to the statement that accompanied the decision. The agency has also reduced Spanish real GDP growth forecast for 2012 to 1% from 1.8% and increased projects for the nations deficit to 5.2% of GDP from 4.8% of GDP, well above the government’s commitment to reduce the deficit to 4.4% of GDP. British Pound The pound fell under pressure yesterday and dropped against the greenback from a one-month high 1.5851 to 1.5631, after reports showed that inflation in the UK accelerated more that economists expected as the central bank policy focused mainly on supporting economic recovery. Consumer prices jumped by 5.2% in annual figures in September, in comparison with a 4.5% annual pace in August and expectations of a 4.9% increase. The figures matched the record high reached in September 2008, which in its turn was the highest level in a decade. The central bank Governor Mervyn King however said that inflation would probably peak in September and slow “sharply” in 2012. The pound strengthened this morning to 1.5769 against the US counterpart.
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