Dollar rates continue to strengthen as credit rating for Spanish bank Santander cut
US dollar rates have continued to strengthen and I personally feel are likely to continue in this fashion as global economic uncertainty continues to rise. Yesterday Bank of Santander along with 15 other banks in Spain were downgraded because it could not guarantee the ability of the Spanish government to provide the support they need. This is likley, in my opinion to keep pressure mounting on the Euro and is also more than likely to continue the current trading conditions we are seeing. I would expect the dollar to be a major mover benefitting from its ‘safe haven’ tag and I would expect the USD to post further strong gains towards 1.55 against the pound and 1.25 against the Euro. Good news if you are selling dollars but those buying may need to reasses their options.
As my colleague Ben also alluded to in his post yesterday, I also feel the so called ‘riskier’ currencies such as the AUD, NZD and ZAR will also lose further ground from this economic turmoil. These currencies are notoriously popular during times of more stabe conditions due to their higher yields and hence potential return for investors. Through the use of a ‘carry trade’ investors borrow in low yielding currencies ie JPY, CHF and seek alternatives with much greater interest rates, hence the move towards the AUD (at 3.75%) NZD (2.5%) and ZAR (5.5%). However during a downturn in global confidence you will often see the unwinding of these trades and an influx of currency to the market, through simply supply and demand – the more of a currency the cheaper it becomes and therfore the value of the sold currency falls. These moves to me are likley to continue and I would expect GBP/AUD to head towards 1.65, GBP/NZD to 2.10 and GBP/ZAR close to 13.5. Likewise I would expect currencies such as the Yen to find support and strengthen against the pound and dollar.
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