USD Graphic Rewind: Buck Climbs as Portugal Sinks Euro; Mubarak Refuses to Resign; China Hikes RRR
The dollar index climbed smartly throughout the day as traders turned risk averse and sought safety. The index erased its previous two days of declines on Thursday as it surged higher against almost all its trading partners. The euro was particularly beleaguered on Thursday as Portuguese yield spreads against German Bunds widened out effecting the entire periphery and reigniting debt fears across the euro-region, sinking the euro. The greenback was well supported also from falling global equities as players took profit on the recent string of higher closes in the Dow and sought safety amid mounting uncertainty.
As the day wore on fresh support for the index emerged in the form of Egyptian President Mubarak essentially refusing to resign despite ongoing protests, saying he will remain in power until the elections in September, in which he still does not plan to run. Oil, gold and the dollar were soon well bid as traders anticipated more political instability in the region. Meanwhile, as the Asia session got underway and many traders were already cautious after the news from Egypt, China’s move to raise the reserve-ratio-requirement (RRR) for some banks sent stocks across the region lower as policy fears weigh in China.
Looking ahead, with the market in such a risk averse mood, amid Egyptian turmoil, renewed debt worries in the EMU and more policy moves in China the buck looks set to continue higher throughout the day. Other safe haven plays like the Swiss franc, yen and gold are likely to be other beneficiaries while the most risk-exposed assets (AUD,NZD) are likely to get hit hardest.
Written by Jonathan Granby, DailyFX Research Team
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