The Health Care Bill, Greece Hurt The Risk Appetite

The health care bill and European sovereign debt issues weakened the risk appetite on Friday. As a result, investor’s safest bet US dollar (USD) climbed higher against all the other major currencies. The worst performers against the USD were the Euro (EUR) and the British Pound (GBP). The EUR/USD pair added to its Thursday’s losses another point, dropping to as low as 1.3503, before recovering a little and closing at 1.3535, the lowest weekly close for ten months. The GBP/USD pair lost more than 2 points, dropping from 1.5250 to 1.4987, but eventually managed to close above the 1.5 level at 1.5015.

Most of the investors interpret the health care bill as another huge tax burden which is going to hurt the economy by decreasing people’s disposable income and, consequently, cutting investing and spending during the time of a very slow recovery. In addition, they fear that the small businesses will be discouraged to hire new employees because of the high expenses associated with the healthcare. In general there is a big confusion about the pros and cons of the bill, a confusion that led to higher demand for safe investments such as the US dollar.

The other major factor that contributed to the higher USD was again the Greek debt crisis, which seems to be far from a final solution. European political figures seem to grow more reluctant to carry the burden themselves, implying that Greece could be better off asking for help from the IMF. Greece, on the other hand, considers that path, but it looks like they still believe that the EU will help. There were also reports on Friday that Portugal and Ireland are not in a lot better shape then Greece after all. Some suggest that the only difference is that those two countries try to keep quiet, while Greece is always all over the headlines.

As a result of the higher Dollar, commodities fell too, carrying the commodity currencies down with them. The only currency that seemed to target for gains on Friday was the Canadian Dollar, which rallied after higher than expected inflation report from Canada, as investors thought that this will be another reason for an imminent rate hike. However, falling commodities, oil in particular, and overall risk-off mode of the markets caught up with the CAD quickly, which closed the day with modest losses against the USD at 1.0162.