Currencies and equities lacked a solid direction during the Asian and the European sessions, as gold continued its run towards historical highs, with a push towards the $1250.00 area.
The price action in gold was triggered as the market sought a safe play to hedge the increasing levels of sovereign debt issued since the beginning of the credit crisis. Investors are positioning ahead of that debt triggering inflation in the long-term, as central banks will be forced to buy the debt issued by governments, thus increasing regional money supplies.
If the market does not want to buy the government debt, then central banks will have to step in. This is what unfolded in the Euro/Greece arena, but now fears are that this will spread to most developed countries.
Historically, gold has been seen as a way to protect the value of any investment in the face of inflation as price depreciation over time is rare, and historically very slow.
One currency that could benefit in the long-term from the current debt challenges is Gbp, after the newly installed British Prime Minister, David Cameron, announced budgetary cuts in an attempt to reduce the U.K. fiscal deficit.
However, the intra-day price action of the Gbp/Usd has been bearish since the Bank of England Governor acknowledged earlier today that growth risks have increased because of the problems emerging in Europe.
A pleasant surprise came from the Europe during the overnight trading hours, after a report showed that the Euro-area economy expanded 0.2% in Q1, which was slightly higher than expected. Germany's Q1 GDP also beat expectations, advancing 0.2%. As a comparison, the U.S. economy expanded 0.8% in Q1.
The outlook for the major currencies over the upcoming sessions remains unchanged: the Gbp and the Cad appear to be the only two currencies able to advance against the Usd, while the Eur, Aud and the Chf appear to be the weakest. Interestingly, the Aud, Eur and the Chf moves have been closely correlated over the last few sessions.
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