Pound Sterling also hit by budget deficit – Canadian Dollar down on risk aversion

Pound Sterling also hit by budget deficit – Canadian Dollar down on risk aversion

02-28-2010 14:12

The Pound continued its downtrend on rumors that the UK will face another long-term crisis as the British record budget deficit will strongly hamper the economic improvement, forcing the Sterling down especially against safe haven currencies. The Loonie dropped to the lowest rate in two weeks against the Greenback due to a pessimistic sentiment towards the worldwide economy that affects the prospects for currencies associated with expansion, such as the Canadian Dollar, given the fact that Canada is one of the most important commodity suppliers in the world.

Budget deficit

Following budget problems in the 16-nation euro area that affected the rate of the Common European Currency last December, the UK may also struggle with a fiscal crisis that will probably lead to the weakest levels in years. The Sterling reached the lowest rate in more than 20 years against the Aussie and is falling freely against the Greenback, refuge currencies and the safest currency in foreign-exchange markets, the Yen, due to currency analysts speculating about the nation’s increasing budget gap that will probably leave the UK central bank no other option than continuing its asset-purchase plan, causing traders to evade Pound-priced assets.

Pound Sterling

Without a doubt, the Sterling will face the same problems as the Single Currency, given the fact that both the Bank of England and the European Central Bank don’t have realistic and suitable plans to solve their financial problems for the time being. It won’t be a surprise if the Sterling reaches the lowest levels in years against its most important opponents.

Greek financial crisis

Risk aversion once again dominated this trading session due to speculations concerning the situation of the European economy, resulting in traders evading risky assets in forex markets. The Japanese Yen posted one of the best results among the 16 most important currencies on concerns that the Greek crisis will infect other members of the European Union and even non-EU countries. The downturn of the Canadian Dollar was only eased by US statements speculating that interest rates won’t be raised by the American central bank in the short term, enabling the Canadian Dollar to erase some of its earlier losses against the Greenback.

Canadian Dollar

The Greek financial crisis continues to dominate the news, which is driving risk aversion among investors, analysts commented. The Canadian Dollar may decline to weaker rates on global developments, given the fact that there are only a few Canadian events that are able to boost the Loonie.