Dollar Gains on Fed Data

Last week the US dollar hit a three month high against the troubled euro and other major currencies despite the Fed statement indicating it would keep borrowing rates at record lows for an ‘extended period.’ Last week the Fed gave an upbeat assessment of the US economy and indicated it would withdraw emergency measures such as quantitative easing in February 2010. The euro has been pressured by Fitch’s and Standard and Poor’s rating downgrade of Greek sovereign debt and Austrian banking troubles. Investors remain concerned about the fiscal health of EU nations. The ECB raised its estimates for writedowns in the Euro Zone by 13%. Emma Lawson of Morgan Stanley stated, “This positive outlook from the U.S., from the Fed and much better data we have been recently seeing are giving you the impetus to get the euro-dollar lower.”

Euro Zone Banks Pressured

The ECB stated in its Financial Stability Review that Euro Zone banks may be forced to write down an additional 187 billion euros due to the “further deterioration in commercial property-market conditions.” The ECB also said that “the surge in government indebtedness” and the reliance of European banks on emergency funding measures threaten the financial and economic stability in the Euro Zone. The British pound made little headway against the greenback and the yen despite positive UK economic data. Total business investment in the UK declined by 0.6% in the third quarter compared with a fall of 10.3% in the second quarter. Next week’s UK GDP revisions are expected to show similar improvements.

Aussie Tumbles

The Aussie dollar which has been a recent big winner in currency markets fell a full 2.5% against the US dollar last trading at 89.02 U.S. cents. Australian Reserve Bank Deputy Governor Ric Battellino dampened speculation of further rate hikes by the central bank saying that monetary policy is in “the normal range.”

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