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Euro Plunges To Lifetime Low

The pound has found support this morning due to a higher than expected UK mortgage approvals in July. The Bank of England said mortgage approvals numbered 48,722 in July, up from an upwardly revised 48,562 in June. Analysts had forecast a reading of 46,500. Sterling rose slightly to around $1.5450 versus the dollar after the data was released, a knee jerk reaction which was quickly bought back down again and sterling still looks precarious at its current levels.

Any clients with buying requirements against the Dollar should consider hedging their exposure by covering partial amounts now. As risk aversion is still the dominant force in the currency markets right now and the American recovery is still very much in doubt.

“You do have a lot of evidence that the economy is just stalling,” said Bill O’Grady of hedge fund Market Strategists “Policy makers are all making a brave face and saying we’ve got plenty of tools available, but I’m starting to think they’re running out of tricks.”

This view is held by a lot of market participants. The second largest economy in the world have begun another round of quantitative easing today after the yen’s surge to a 15-year high against the dollar last week threatened Japan’s export-reliant economy.

The Nikkei share average also plunged prompting Japanese authorities to consider unilateral currency market intervention for the first time in six years.

While the government is not ruling out intervention, traders and analysts believe that the drop in the dollar/yen rate would have to become much more volatile or deeper for the authorities to take action.

The yen’s rise is adding to deflationary pressures on the Japanese economy, and the toll on shares of exporters has driven the Nikkei down 16 percent making it one of the worst performing markets in the world this year next to China and Greece.

The poor performance in Japan and America has propelled risk aversion in the Euro zone to a zenith today after various down grades and debt related uncertainties compounded to drive the Euro to a lifetime low against the Swiss franc.

The euro fell as low as 1.2898 francs, according to traders before pulling back to 1.2917 by early this morning.

Traders in London said that stop-loss sell orders under 1.2920 francs had accelerated the euro’s slide, while the dollar’s break under a key barrier of 1.02 francs to its lowest since mid-January, also added to the Swiss franc’s upward momentum.

A good barometer of the state of the global recovery is the price of oil, as future oil contracts drop demand is perceived to wane along with the economic recovery. Crude oil fell today for the first time in four days as slower-than-forecast growth in personal incomes in July heightened concern the economy is struggling to recover.

The Australian dollar closed weaker after a risk-averse mood gripped world markets and dampened the effects of largely positive local data. Also with the election result hanging in the balance and global demand for their mineral wealth being revised down, the Australian Dollar is losing some of its appeal.

Looking forward to this week, tomorrow morning will see the release of Australian GDP figure, a very big event in the economic calendar.

Canadian second quarter growth figures are due out today, with analysts expecting annualized growth of 2.5%, down from the 6.1% seen in the first quarter. A worse than expected widening in the trade balance had little impact last week.

ISM Manufacturing tomorrow afternoon from America could have an impact on currency transfer flows along with exchange rate volatility. Corporate currency transfers can pick up in the lead up to this figure as manufacturing levels impact on their currency flows a good deal.