Dollar floored on debt ceiling

Aug. 2, 2011 - PRLog -- As global stock markets continued to be buffeted by uncertainty, the US dollar lost over a cent against the pound and fell to historic lows versus the Swiss franc, as the reality of a US debt default became more of a possibility.

US economic data proved to be mixed. Jobless claims fell to 398,000, whilst there was a 2.4% increase in pending home sales. However, weaker-than-expected durable goods data along with poor Gross Domestic Product (GDP) data ensured any gains for the dollar were short lived.

Sterling’s performance remained mixed last week, adding gains versus both the US dollar and euro, whilst losing out to ‘commodity bloc’ currencies such as the Australian and New Zealand dollars.

Tuesday’s release of GDP figures ensured the pound started the week on the back foot. Figures showed economic growth slowed sharply in the second quarter after the royal wedding and continuing after effects of the Japanese tsunami dented production.

The latest consumer confidence index recorded a further decline to for July.

The pound was hindered further as Bank of England (BoE) policy members, Miles and Weale, both warned that the economy could retreat back into recession.

Increased fear of contagion saw the euro falter last week, losing well over half a cent against the pound. Italy's borrowing costs soared as yields at Friday’s bond auction jumped to 5.77 percent on 10-year paper, the highest since February 2000.

German Finance Minister Wolfgang Schauble warned there was no blank cheque relating to European Financial Stability Facility (EFSF) funds, ensuring political doubts over the Greek rescue deal. Further euro negativity came as ratings agency Moody’s put Spain’s credit rating on review for a possible downgrade.

The Swiss franc benefitted from its perceived ‘safe haven’ status as uncertainty in the US helped it add over two and a half cents versus the pound. Although the Reserve Bank of New Zealand left interest rates on hold, the New Zealand dollar continued its recent run of good form.

The Canadian dollar lost over a cent against the pound last week as data showed its economy shrank during May, whilst buoyant gold prices ensured the Australian dollar finished the week back below $1.50 against Sterling.