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Euro back under the spotlight

27 April 2012  •  Source: Mark Bolsom, Travelex

The euro is back under the spotlight this morning after ratings agency Standard & Poor’s yesterday lowered Spain’s investment rating, renewing speculation in the market the eurozone’s fourth largest economy is heading towards a Greece-like bailout.

The single currency’s decline however is being overshadowed by the Bank of Japan’s surprise monetary policy announcement overnight. Policy makers in Tokyo sanctioned another 10 trillion yen of bond-buying in order to combat the yen’s strength and inflation risks. Investors had expected a less aggressive 5 trillion yen increase.

The British pound notched another new 7-month high against the US dollar yesterday and looks set to revisit 20-month peaks versus the euro as headlines from other region’s help overshadow UK economic concerns. The greenback’s weaker tone was not helped by below-par US weekly jobless claims data.

The US dollar, however, could turn the currency market on its head today with all-eyes on this afternoon’s first quarter US growth data. Forecasts from most economists expect the US economy to have slowed over the first three months of the year, supporting the Federal Reserve’s dovish monetary policy outlook and pledge to inject more dollar-negative stimulus into the economy if required. On the other hand, a better-than-expected result has the potential to dampen such speculation and send the US currency soaring across the board.

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