FX Week 24 February 2013

FX Week

USD is breaking higher

Last week saw more events turn sentiment, which had been risk loving at the end of January, to being risk fearing approaching the end of this month. This culminated in a downgrade for the United Kingdom by Moody’s on Friday, with the UK losing its triple AAA rating for the first time since the late 1970s. In the US the monetary policy debate turned noticeably more cautious as the Fed minutes were released, with a growing number of FOMC members seemingly in favour of scaling back asset purchases even before ‘a substantial improvement in the outlook for the labour market has occurred’. China also appears to be on the brink of tightening monetary and property market policies, while in the Eurozone the divergence in economic performance between Germany and the rest became even more visible, as survey data showed the Eurozone’s contraction deepening in early February. With Italian and Cyprus elections this weekend and the second US’ fiscal cliff’ fast approaching in the US the USD is likely to remain the preferred currency for the time being, having enjoyed a significant bounce over the past week, and indeed throughout February.
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