Dollar At 15 Month Low Monday

On Monday the US dollar hit a fifteen month low as investors speculated that US interest rates would remain low for an extended period. The pound was hammered by news that Fitch said that the UK was at risk of losing its triple AAA credit rating. Fitch said that of the four major economies the UK was most at risk and the news sent the pound plummeting in currency markets. David Riley of Fitch said that if there was a further stimulus package offered by the UK government the highly indebted country is at risk of losing its superior credit rating. Lutz Karpowitz of Commerzbank stated, “The Fitch news was a reminder of the longer-term issues facing the UK.”

Pound Hammered on Rating Concerns

The pound fell from a three week high of $1.6844 on Monday to as low as $1.6600 and last traded at $1.6655, a decline of 0.6%. Against the euro the pound fell to 90.00 pence per euro. A decline in European equities and falling oil prices dampened risk sentiment and the euro hovered around $1.50. A weaker than expected German ZEW survey showed investors more pessimistic than at any time in the last four months. James Hughes of CMC Markets stated, “The ZEW was a pretty weak number, but the fall in the euro wasn’t huge initially and it quickly fizzled out. It looks like the whole theme of dollar weakness will dominate for some time to come, as long as (monetary and fiscal) stimulus remains in place.”

Dollar Index Up

On Tuesday the dollar index which measures the US dollar against a basket of six major currencies was up 0.2% to 75.176 .DXY. Speculation that the US will continue to keep rates low has enabled investors to use the dollar for carry trades to finance the purchase of higher yielding assets especially when stock markets rally. Officials from the US Federal Reserve are expected to speak Tuesday and investors will be looking for any changes in US monetary policy.