Another wacky day in the world of Forex, so where do we start, the pound selling off or the dollar?
First, a recap of the numbers: (as of 19:30 GMT)
EURUSD : 1.3558 (-71 pips)
GBPUSD : 1.4989 (-255 pips)
AUDUSD : 0.8993 (+39 pips)
USDCAD : 1.0423 (-93 pips)
GOLD : 1118.00 (+ $5.50)
CRUDE OIL : 78.65 (- $0.95)
S&P 500 :1114 (+8.25 points)
So whats going on?
In a nut shell, the PIGS continue to be a drag on the Euro, and the UK doesn't look to far away from joining them. Therefore, this has caused Forex traders to jump into the band wagon of the relative safety of the dollar (Whether the dollar is safe is another question, but most importantly it remains the easiest place to stash a billion dollars or two for a few days when a trader decides where to invest in). As such the dollar index continues to rally and traded above 81.00 earlier in the day before giving ground and settling around 80.50.
Nonetheless, the selling pressure appears to be centralized around the pound and euro, where concerns about the UK's upcoming elections and more Greek bailout problems have sunk those currencies. However, higher yielding currencies like the Aussie and Kiwi have been able to lodge small gains on the day. These moves may be small, but they are significant as they occur after huge gains that took place last Friday. Also, Gold prices have held up well around the 1115/20 level, and appear poised to make a move beyond 1125. This trading continues to show that gains taking place in the dollar aren't broad based and will disappear quickly if we see positive developments from the UK and Europe.
Pound - Going Going Gone!!
The big loser today was the pound, as it broke below 1.5000 and heavy sellers (probably a liquidating hedge fund) caused it to fall like lead and hit lows of 1.4783. What we do know so far is that the UK's economic recovery appears to have stalled, and this has increased speculation that the Bank of England will restart its Asset Purchases Program, which would be inflationary for the pound. Also, the newest rumbling hitting the pound is the upcoming parliamentary election which appears headed for no party holding a majority. Such a hung government would make it difficult to implement broad deficit cutting proposals. This isn't a new piece of news, but it has become a much hotter topic in the media and could cause Pound weakness for the short to medium term.