Foreign Exchange: Pound Falls Against Euro and US Dollar

Yesterday, the Pound fell against both the Euro and the US Dollar as global risk appetite weakened on the threat of contagion in the Euro-zone.

The Pound fell against the Euro yesterday towards 1.2450, and towards 1.58 against the US Dollar.

With risk appetite weakening on the threat of contagion in the Euro-zone, the single currency fell to a new four month low against the US Dollar – Spain’s borrowing costs rose at the latest bond auction, which increased concerns that the Greek debt crisis is spreading to other Euro-zone economies.

Traders will be seeking the safety of the US Dollar as global stocks and commodities markets plunge. The ECB has said it will stop lending to some Greek banks and the Chairman Mario Draghi has indicated that it won’t make compromises to help keep Greece in the Euro-zone.

With speculation that the Bank of England could sanction more quantitative easing within in the next two months, the Pound was unable to challenge near-term resistance levels above 1.25 against the Euro.

As worries continue to surround the UK economy, risk conditions continue as an important focus and an increase in fear pushed the Pound lower against the Dollar again overnight.

EUR/USD

The Euro plunged to a fresh four-month low against the US Dollar as a result of concern that the sovereign debt crisis is worsening.

The single currency was at its weakest in three months versus the Yen, as investors flocked to the relative security of lower-yielding assets.

This followed Fitch Ratings downgrade of Greece’s long-term credit rating due to concern that the struggling nation may not be able to sustain membership in the monetary union.

Some doubts are being raised over the US economic outlook as for example the Philly Fed Index dropped to -5.8 from 8.5. That said the latest US jobless claims data was broadly in line with expectations, unchanged from, 370,000 in the latest week.

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