Will currencies see rounds of competitive devaluation?
*The Wall Street Journal, by Paul Evans, June 8, 2009
“Events overnight generally continued to play to the dollar’s favor, as the euro, pound sterling, and riskier currencies were weighed down by declines on most major Asian and European stock markets, as well as a downgrade to Ireland’s credit rating by Standard & Poor’s.
The ratings agency cut Ireland’s sovereign rating to AA from AA+, with a negative outlook contingent on developments in Ireland’s banking sector.
This further testament to the continuing pressures on euro-zone financial institutions helped take the euro below $1.3900 against the dollar for the first time this month. The single European currency has recovered off its intraday low of $1.3806, but remains stuck in aimless dealings in the mid-$1.3800s.
Dollar moves aside, it was sterling, hobbled by politics, that grabbed the market’s attention earlier Monday, after results from the European Parliament elections showed a disastrous performance by the U.K.’s ruling Labour Party.
Prime Minister Gordon Brown’s authority had already weakened last week, after a similar drubbing in local elections. But the European results reignited expectations that Brown may be ousted soon, and that the government may be forced into an early general election.
This uncertainty has hit sterling, despite its usual immunity from political wobbles. The pound hit a two-week low at $1.5803, according to EBS, but has since recovered to hover around late Friday’s closing levels.”
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