Stronger Equity Markets Driving Up Demand for Risky Currencies

Despite upbeat earnings from Alcoa last nightafter the close and a stronger equity market this morning, the Euro is downbecause of the renewed sovereign debt concerns.

Despite upbeat earnings from Alcoa last night after theclose and a stronger equity market this morning, the Euro is down because ofthe renewed sovereign debt concerns. Last night Moody’s downgraded Portugal’sdebt rating, sending a signal to traders that problems may still be lingeringin the Euro Zone despite a month of calm.

Traders had expected the Euro to rally with the equitymarkets because of a recent shift in investor sentiment, but today’s weaknessin the Euro demonstrates that short traders are still on a hair trigger and cantake this market lower in a heartbeat should negative data arise.

The British Pound is attempting to break a three-day losingstreak today following a report which showed inflation above economists’forecasts and higher retail sales. This news helped reignite the case for arate hike by the Bank of England.

The Sterlinghad been under pressure since late last week following a Bank of Englandmeeting in which policymakers decided to leave interest rates at historicallylow levels. This news didn’t sit well with investors who felt that inflationwas high enough to warrant a rate hike at this time or at least before the endof the year.

Higher stock prices are helping to boost demand for higheryielding assets. The Australian and New Zealand Dollars are posting stronggains but upside movement has been limited because of a poor outlook for Chinademand. Strong rallies in gold and crudeoil along with the rise in equity markets should underpin the Canadian Dollar.