By: Nikoletta Panteli
EUR/USD
The Euro weakened at the start of the new week against the US Dollar on heightened risk aversion in the market. The pair opened at 1.2538, rose to 1.2530 and later traded at two-year lows falling to 1.2455, a 0.6% decline. Investors are now worried about the escalating problems in Spain’s banking sector while the Spanish borrowing costs rose following an auction on Tuesday. Fears were intensified after rating agency Moody’s downgraded Spain’s long term debt and deposit ratings for 28 Spanish banks. Risks of contagion to other eurozone countries are higher and are now looking to the European summit where the Eurozone debt crisis may be resolved. While this is happening, there is some pessimism that is dominating the markets as investors are doubting that there may be an agreement at the summit for substantive action. On Monday, it was announced that Cyprus is going to be the fifth eurozone country to request financial aid due to it's banks being hit by exposure to the heavily indebted Greece. Last week, the US Federal Open Market Committee (FOMC) extended “Operation Twist” to the end of 2012 and did not announce a third round of quantitative easing supporting the US dollar. Attention also shifts to the US Durable Goods Orders, Gross Domestic Product as well as the eurozone Consumer Price Index.
GBP/USD
The British Pound edged higher versus the US Dollar at the beginning of this week. The pair opened at 1.5580 and rose as high as 1.5650. The debt crisis in the Eurozone and the deepening problems of the Spanish banking sector weighed on the Sterling and boosted investors’ appetite for the safe haven Dollar. On Tuesday, Sterling dropped after the Bank of England (BoE) said that Britain’s economic outlook has worsened due to the eurozone problems. They also said that next month there are some expectations for a new round of asset purchases based on King's comments. According to King, the central bank may need to change some things as the UK economy slipped into its second recession since the start of the financial crisis. The UK Gross Domestic Product is also expected to be released this week.
EUR/JPY
The single currency plummeted versus the Japanese Yen this week weighed by the eurozone deepening debt problems. Investors’ doubt that this week’s EU summit will produce a neat resolution while the Yen attracts safe haven demand as uncertainty in the markets is heightened. The pair opened at 101.01 this week and slid as low as 98.74, a 2.2%% decline. Retail Sales, Purchasing Manager Index and Consumer Price Index from Japan may give a picture about the economic conditions in the country.
EUR/GBP
The single currency edged lower against the British Pound yesterday falling to 0.7984 after the pair opened at 0.8046. Sterling appears strong, supported by its safe haven status as its triple-A rated government bonds attract increasing demand, while the eurozone is suffering from stagnation in economic growth. Focus remains on the eurozone periphery countries such as Spain and now Cyprus as eurozone debt contagion fears weigh on the single currency.
USD/CHF
The Greenback rose against the Swiss Franc this week. The pair opened at 0.9578 and rose to 0.9641. Deflation continues to be a threat for the Swiss National Bank (SNB) putting pressure on it to intervene in the currency markets in order to weaken the franc. The SNB has set a floor at 1.20 in September for the Euro versus the Swiss Franc in order to protect its exports. The Swiss economy has managed to escape an economic contraction and a 1% economic growth is expected for 2012.