Forex Roundup: The Euro (EUR) Strengthens as Spain Dodges the Downgrade Bullet

on Oct 18, 2012
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The Financial Times reported on October 17 that the euro continued to climb against the dollar after the credit rating agency Moody’s (NYSE:MCO) spared Spain’s credit rating and kept it at investment grade, one level above junk. The greenback, however, lost ground against most of its counterparts with positive US data providing support to risk appetite in currency trading.

**The Euro Advances after Moody’s Review**
The euro advanced 0.6 percent against the US dollar, touching $1.3139, its strongest level in a month. The single currency benefitted from Moody’s decision to reaffirm Spain’s investment grade credit rating. Hopes that Madrid would request the much anticipated bailout also provided support to the euro. The common currency climbed 0.6 percent against the yen.

Bloomberg quotes Cilline Bain, a technical analyst at Credit Suisse Group AG (NYSE:CS) as saying that the euro may appreciate further to its highest level in nearly eight months after breaking out above $1.3074.
**Risk Appetite**
!m[The Greenback (USD) Falls Against Most Majors On Positive Risk Sentiment](/uploads/story/600/thumbs/pic1_inline.png)The greenback fell against other majors, with risk appetite dominating trade in currency markets. Figures showed that in September, US housebuilding reached its highest level in more than four years, adding to the positive sentiment. “The combination of stronger US data releases, better than expected third-quarter financial sector earnings and Europe moving from complacency into action has provided further support to risk appetite,” noted analysts at Morgan Stanley (NYSE:MS), as quoted by the FT.

The US dollar lost 0.7 percent against its Canadian counterpart, which clawed back its losses from the previous day when it weakened the most in about three months against the greenback. The loonie suffered after Mark Carney, governor of the Bank of Canada, suggested in a speech that he may reduce his economic outlook and delay raising policy interest rates.

The Australian and New Zealand dollars were particularly strong against the greenback, with the Aussie rising one percent to $1.0383 and the Kiwi reaching 0.8226.
The yen also strengthened against the US dollar following a recent decline due to speculation that the Bank of Japan might face pressure to further increase monetary stimulus at its upcoming policy meeting on October 30. The dollar fell 0.2 percent to ¥78.75.

Bloomberg reports that the Dollar Index which tracks the greenback’s performance against the currencies of six US trading partners, declined by 0.5 percent, touching its lowest level since September 18.
**Bank of England Minutes**
The pound rose 0.3 percent to $1.6178 following the release of the minutes from the Bank of England’s last monetary policy meeting. The FT reports that the minutes showed that the Bank of England was split on further monetary stimulus, with some members of the bank’s Monetary Policy Committee expressing doubts over whether quantitative easing was still an effective tool to boost growth.
The pound, however, fell 0.3 percent against the euro to €1.2311 with analysts noting that positive Eurozone sentiment was likely to limit any gains of the pound against the single currency. The FT quotes Rabobank’s currency strategist as saying that the euro/sterling pair remained correlated with the euro/dollar cross and that suggested “that the tone of the latter will remain a strong influence”.

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