Although the euro has regained some of the day’s losses, the single currency earlier fell to a two month low against the dollar, extending its losses caused by uncertainty over Ireland’s plans to tackle its debt problems as political unrest deepens. Uncertainties remain over whether the crisis in Ireland will actually be resolved as the IMF and EU try to reach an agreement with a government teetering on the brink of collapse.
Fears of the crisis spreading to other peripheral eurozone nations has reached fever pitch as concerns seem to have skipped the next logical step, Portugal and moved straight to Spain. A default from the Iberian Peninsula would dwarf anything so far as it is the continents fourth largest economy. Peripheral government bond yield spreads over Germany have widened as a result.
Another factor lifting the dollar is of course the unstable nature of relations between North and South Korea. A statement released from north of the border suggested that the two nations are approaching a state of all out war. This has only helped the so called ‘refuge’ currencies as investors look for safety until matters are resolved.
All in all, sterling is not a bad place to have your pennies in at the moment.
Tom Hampton
Analyst – Caxton FX
