The US Dollar has hit its strongest level in almost three weeks against the Euro as speculation mounts that US policy makers will struggle to reach an agreement on raising the nation’s debt limit, causing a surge in demand for safe haven assets.
The Japanese Yen also saw increases making gains against all 16 of its most traded peers as fears mount that the US Treasury will be unable to maintain the so called ‘extraordinary measures’ needed to keep financing the world’s largest economy. The money could run out by as soon as February or early march after the US hit its $16.4 trillion debt ceiling on the 31st of December.
“All the way through the first few months of the year it will be fiscal policy and monetary policy which are at the forefront of people’s minds,” said Paul Robson, the senior currency strategist at Royal Bank of Scotland Plc. “There was a risk of some pullback” after the dollar initially weakened yesterday, he added.
The Dollar is set to make further gains as uncertainty over the USA’s finances continues to create volatility in the markets.
“Yesterday, we called a peak in risk appetite,” Morgan Stanley analysts led by London-based head of foreign-exchange strategy Hans Redeker wrote today in a report to clients. This represents “a significant change to the strategy we used in the second half of last year, when we traded currencies from a risk- bullish angle. The compromise achieved on New Year’s Day suggests that polarity between U.S. political parties has grown. The U.S. fiscal cliff agreement has only postponed deadlines to February.”
The Pound to Euro exchange rate is currently trading at 1.2335
The Pound to US Dollar exchange rate is currently trading at 1.6166
The Pound to Australian Dollar exchange rate is currently trading at 1.5372
The Euro to US Dollar exchange rate is currently trading at 1.3104
The Euro to Pound exchange rate is currently trading at 0.8105
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