(As written for My Paper on 29 May 2012. Click here to enlarge)

Among all the major currencies, the US dollar has emerged the clear winner for the month of May.

As we near the end of May, the greenback is up five percent against the Euro, six percent against the Australian dollar and seven percent against the New Zealand dollar.

For the most part, the US dollar has the best of both worlds. It rallies when the US reports good enonomic data, and it also rises when there is a demand for safe haven currencies.

At the end of last week, the strength of the US dollar was supported by the release of several news, including new home sales and a survey on consumer sentiment. The consumer sentiment survey, also termed the University of Michigan Consumer Sentiment Survey, reported a number of 79.3 for May. This was better than the expected figure of 77.7.

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(As written for My Paper on 22 May 2012. Click here to enlarge)

Fears of a “Grexit” roiled the markets last week.

EUR/USD fell over 200 pips last week as news broke about Greece’s failure to form a ruling coalition on 15th May. The news shocker also sent Spain’s 10-year bond yield to a five-month high of 6.5% and Italy’s 10-year bond yield to 6%, the highest since 30th January 2012.

This week, a quick check on the bond market reveals that the four countries in the “danger zone” – Greece, Portugal, Spain and Italy – display a widening yield spread versus the German 10-year bonds.

These figures stand at 27.6%, 10.87%, 4.88% and 4.52% respectively.

In the Credit Default Swap (CDS) market, iTraxx Europe index recorded a figure of 181.84 yesterday, surging 15% on a weekly basis and 25.44% on a monthly basis. This tells us that more and more traders are betting on an impending Greece default.

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(As written for My Paper on 15 May 2012. Click here to enlarge)

Amidst the on-going European debt crisis, the Sterling has emerged as one of the unlikely safe haven darlings for currency traders.

The Pound has strengthened 3.4% against the Euro since the start of the year and 7.4% if measured from October 2011.

To many traders, this is surprising, considering two important points. Firstly, the UK is undergoing its second recession in only three years. Secondly, the Bank of England has flooded the financial system with Sterling in its quantitative easing (QE) program – to the tune of 325 billion Pounds.

So what is the main reason for the continued strength of the Sterling despite its weak fundamentals? The answer, is the recent “hawkish” tone displayed by the Bank of England (BOE).

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