The US dollar continues to flounder

The greenback has managed to claw back early losses as it sank to $1.5874 against sterling, $1.3641 against the single currency and a two year low against the Australian dollar.

The ailing dollar fell this morning as sliding US treasury yields and mounting fears of a second round of quantitative easing pushed the currency lower. With a continuous stream of weak economic data and Q4 predicted to be very slow globally, it’s beginning to look like the only thing that may shift focus away from the greenback would be a European nation defaulting on its debt (which is looking increasingly unlikely).

Sterling felt the full force of panic over potential monetary easing measures as Adam Posen, a member of the MPC, declared that the Bank of England may even need to go as far as buying up corporate debt to guard from the double dip recession.

In other news, the House of Representatives is poised to pass legislation to pressure China to let its currency appreciate more freely. A brave move by the Americans as the Chinese Central Bank holds over a trillion dollars in notes alone. A sell off of dollars from China could send the US currency into freefall (at least the US export market might help them through these dark days?).

Tom Hampton
Analyst Caxton FX

Sterling falls as gilt auction fails to find buyers

The pound fell sharply against the euro yesterday, losing around 2 cents following news from the British Debt Management Office, which conducts UK Treasury bond auctions, that there weren’t enough interested buyers for the UK government’s £1.75 billion gilt auction. This is the first time in almost seven years that such an auction has failed, which puts Prime Minister Gordon Brown in a precarious position. The British government plans to sell a record £146.4 billion worth of gilts this year and up to £147.9 billion next year to pay for the tax cuts and fiscal spending intended to dig the UK out of recession. But with demand seeming lackluster it may become increasingly difficult and more expensive for the government to fund its economic recovery efforts.

Sterling was also undermined yesterday by a sharper than expected fall in the Confederation of British Industry's distributive trades survey balance.

M3 Money Supply figures are released in the eurozone this morning, while Retail Sales figures are due from the UK today.