Tough Task Ahead for GBP

The U.S. dollar opened mixed on Tuesday, firming against the British pound, which fell overnight after a warning from Fitch on the nation's finances.
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The U.S. dollar opened mixed on Tuesday, firming against the British pound, though it lost modest ground against Europe's single currency. Greece's finance minister on Tuesday had some reassuring remarks for investors, saying that its country's budget reforms were "on track." Those comments helped to improve risk sentiment that had been mostly depressed during the overnight session on persistent worries that Europe's debt problems will slow growth in the region.

Underscoring the earlier bout of risk aversion, safe haven gold soared to a fresh all-time high above $1,250 an ounce. Investors had also flocked toward the safety of the Swiss currency, which strengthened to a new record high against the euro for the third time in as many sessions on Tuesday.

The British pound fell overnight, hurt by a warning from Fitch Ratings agency on the nation's finances. Fitch characterized the fiscal challenges ahead of the UK as "formidable."

The greenback opened mostly flat against the Japanese currency. However, overnight the buck rose against the yen after Japan's new prime minister said that a weak currency was good for the nation's exports.

The Canadian dollar gained against the U.S. currency on Tuesday as a modest improvement in market confidence and firmer oil prices lent support to the loonie. Data on Canadian housing starts in May are due out this morning.

EUR

: The euro was modestly firmer against the U.S. dollar as an uptick in investor sentiment lent support to the embattled single currency. Japanese stocks eked out small gains and European stocks attempted to pare some of their session losses. Greece's finance chief at the onset of Tuesday's U.S. trading session said that its budget reforms were "on track." The remarks highlighted how sensitive the common currency is to headlines from the euro zone region, particularly when the subject is about finances.

Still, worries about the fiscal health of many of the bloc's southern peripheral nations are expected to keep pressure on the euro and limit its upside potential. In addition to its recent four-year low against the dollar, the euro hit a new historic low against the Swiss franc, while against its British and Canadian rivals, the euro is near its lowest in 18 months and 9 years, respectively.

GBP

: The British pound fell overnight after cautious comments from Fitch Ratings agency on the state of U.K. finances hit sterling sentiment. Fitch warmed of the tough task ahead for the new coalition government in tackling the nation's bloated deficit. The ratings agency also recommended that U.K. officials ramp up their efforts to get their finances in order. New U.K. Prime Minister David Cameron is expected to unveil his administration's new emergency budget on June 22. Although it is likely to contain measures to slash spending, those expected steps are likely to darken the outlook for British growth. Consequently, the pound's upside is likely to be restrained over the coming weeks.

CAD

: The Canadian currency firmed overnight in line with a modest improvement in risk sentiment. Oil prices opened in the plus column, which also helped to improve the loonie's appeal. The Canadian unit was little changed by data that showed local housing starts came in at an annualized rate of 189,100 units in May -- below both the 200,000 forecast and 201,800 unit rate in April. Overnight, the loonie neared last Friday's 2001 peak against the euro amid concerns about how Europe's debt problems could further hurt the bloc's banking sector and weigh on the outlook for growth in the euro zone.

USD

: A dearth of U.S. data during the first part of this week will see many investors bide their time until key data set for release on Thursday and Friday. In the meantime, U.S. currency watchers should look to global stocks that are a good gauge of risk appetite. Headlines out of Europe should also influence the buck's direction, with any negative developments seen bolstering the dollar's safety status. U.S. weekly jobless claims and the April trade balance are due on Thursday. Friday brings key household-related data on retail sales and consumer sentiment.