The Euro rose to a four week high against the USD and the Australian Dollar jumped more than 1% this morning, as news flooded the market that China would give the Yuan more flexibility. Beijing announcement to end to the Yuan’s fixed rate against the American Dollar has fueled traders to buy riskier assets.
However, the Yuan is not the only news rocking the markets – the affects of the devastating BP Oil Spill continue to spread across the globe. As big oil companies suffer from a particular bad public image (i.e blamed for the world’s ecological decay as well as high gasoline prices), it has been particular easy for the media, as well as politicians, to draw the public’s attention away from Europe’s sovereign debt crisis. As such, the EURUSD is up over 600 pips from its lows, leading equity indexes are at six week highs, and commodities – led by crude oil prices – have rallied.
Negative euro sentiments appear to be finally fading as the EUR continued to trade higher against the USD. Last week, the single European currency appreciated the most against its American counterpart since May 2009, as dwindling concerns over the region’s debt crisis encouraged traders to end bets against the shared currency.
Nonetheless, the Euro’s recent rise remains isolated to the greenback – the 16-nation common currency has been unable to appreciate much against the Pound, Aussie and Swiss Franc. This inconsistency may indicate that the Euro’s rise against is based more on dollar selling than euro buying. As such, this current status quo is likely to continue since economic data this week is US heavy while little high impact news is expected from the Euro zone.
Later today, ECB President Jean Claude Trichet will testify on Economic and Monetary Affairs before the European Parliament, in Brussels.
On Friday, the Pound rose to a one month high against the greenback as risk buying returned to the market and stronger economic data fueled investors to buy currency. The Sterling rose 0.3%, to hit a high of $1.4872 – the pairs highest level since May.
Up ahead, it is expected to be a heavy week for the British Pound as the UK will announce its Annual Budget on Tuesday followed by MPC Minutes on Wednesday. The Budget Release is actually the second one of the year; however, the change in government leadership has made the previous budget irrelevant as new spending cuts have been enacted. George Osborne, UK’s Chancellor of the Exchequer, will present the cuts in front of the parliament. With the newly elected government aiming for £6 billion in cuts for 2010, investors will be reading quickly through the budget to see if these cuts are realistic. The Pound could very well appreciate if the market reacts positively to the proposed budget, or depreciate of skepticism reigns.
Written by Finexo.com