The dollar edged up again today benefitting from the resurgence in risk aversion, U.S. Treasury yields have jumped considerably this week, the euro has continued to slip after ratings agency Fitch downgraded Ireland’s sovereign debt again.
Fitch cut its rating on Ireland to BBB+ to reflect the additional costs of restructuring Dublin’s ailing economy and banking sector, after Dublin secured a bailout from its European neighbors last month. Whilst Fitch’s rating doesn’t carry the same kudos as the pre-banking crisis climate, the markets do still pay attention to them.
Euro weakness isn’t likely to blow over anytime soon.
The dollar continued rally due in part to an extension of U.S. tax cuts announced this week, traders reason that the tax cuts will encourage the ailing American economy. Further gains were capped as a retreat in the benchmark 10-year U.S. Treasury yield from a six-month high hit on Wednesday quelled demand for the dollar.
Analysts said the extended tax cuts were seen as supportive for the economy and therefore the dollar, while U.S. Treasuries have sold off heavily this week, as the simulative move fuelled fears of inflation and deteriorating U.S. fiscal health.
“The latest fixation is the tax issue and that’s created a bond angle, and it’s created a growth story that is positive for the U.S.,” said Daragh Maher at Credit Agricole.
On the other side of the world the Kiwi’s have kept their interest rates on hold along with the Australians, further upward moves are expected in the medium term which will undoubtedly add to the Antipodean appeal.