• Sterling hits two month high vs weak euro, slips vs dollar
• Euro falls to 2-month low on euro zone worries
• Moody’s affirms US rating, warns of downgrades
• Aussie and Kiwi dollars remain under pressure
Pound: Sterling hit a two month high against the euro yesterday as the single currency suffered broadly due to renewed worries about euro zone debt and the risks of contagion to countries like Spain and Italy. Despite gains versus the euro, the pound slipped against a stronger dollar, failing to gain traction despite better than expected UK construction activity data. Sterling strengthened to €1.1496, a level last struck on May 31. Analysts said ris¬ing costs to insure against a default in euro zone countries including Portugal, Spain, and Italy had stung the euro in early trade, benefitting the pound even as a run of weak UK economic data show a sluggish economic recovery. UK construction PMI data for July beat expectations with a reading of 53.5 compared to a forecast of 53.0, but the positive impact on sterling was limited as construction makes up less than 10 percent of the econ¬omy. The outlook for the UK remains lacklustre after data on Monday showed the manufacturing PMI shrank for the first time in two years, pushing sterling down from a two month high of $1.6477 Data 09.30: Services PMI.
Euro: Analysts said the euro’s falls were due to renewed fears over the euro zone periphery debt burden as focus shifted away from the US debt crisis after lawmakers there clinched a last-minute deal to lift the debt ceil¬ing. The single currency was off its two month lows as traders cited decent sized corporate bids around €1.1495 and many market players said the pound looked overstretched. But technical analysts said there was potential for further weakness in euro/sterling after it failed to break through the €1.1364 support level on Monday.
No major data due today.
Dollar: Markets continued to spiral downwards even as the US’s debt deal was signed into law yesterday, with President Barack Obama warning that the economy was suffering a ‘Washington-inflicted wound on America’. Even after it was passed comfortably by the Senate, investors took little solace from the deal, which will cut $2.4 trillion from the US spending plans over the next decade. Obama called it ‘an important first step to ensuring as a nation the we live within our means’. And fears remain over the US losing its triple-A credit rating as negotia¬tions over further spending cuts progress. Ratings agencies Fitch and Moody’s affirmed the USA’s triple-A status yesterday, though the latter cut its outlook to ‘negative’, warning that a small risk of default lies within the new ‘untested’ fiscal plan. And investors are waiting S&P’s verdict: the agency had previously said that $4trillion in cuts would be needed to avoid a downgrade.
Data 13.15: ADP Non-Farm Employment Change; 15.00: ISM Non-Manufacturing PMI
General:
• The Australian and New Zealand dollars remained under pressure in overnight trade as Asian stock ex-changes followed Wall Street lower, dragging sentiment-sensitive currencies downward.
• Swiss franc weakened across the board after the SNB intervened in currency markets.
