Daily currency report

Equity markets tumbled and investors flocked in numbers towards safer assets as European debt problems intensified. In terms of currencies, the US dollar, Japanese yen and, to a lesser extent, Swiss franc were the chief beneficiaries. Euro losses accelerated as Ireland continued to deny that they are in talks over a possible bailout and maintain that they are fully funded in the short-term. The exposure of UK banks to Ireland also sent sterling sharply lower against the US dollar despite surprise increase in consumer price inflation.

Sterling

Sterling fell as contagion spread from Irish debt concerns. The pound was sold off despite October’s UK consumer price inflation data. This saw yet another rise in prices and suggested that the Bank of England is in no position to further loosen monetary policy.

US Dollar

The US dollar surged across the board as investors sought shelter from growing uncertainty over Ireland and other peripheral eurozone nations. A mixed bag of local data did little to dent the greenback’s rise to seven-week highs against the euro. US industrial output showed no change at 0 per cent on the month in October, although the figure is encouraging when compared to the previous months -0.2 per cent reading.

Euro

Euro losses accelerated amid growing uncertainty over the Irish economy. Pressure is mounting on Ireland to accept funding from a special facility set-up to aid failing EU members. However, Ireland continues to deny that they are in talks over a bailout and maintain that they are fully funded in the short-term. Loans will come with strings attached and Ireland will not want to lose control over their own economy. A bailout would also have a detrimental impact in terms of credibility. As eurozone spread yields spiral out of control, investors are looking for a bailout package to be agreed in order to calm European bond markets and restore confidence in the euro. Contagion is quickly spreading to other peripheral nations such as Portugal and Spain and, as long as sovereign debt issues remain unresolved, the single currency may continue to tumble along with sentiment.

Japanese Yen

A lack of significant local data release forced the yen to again seek direction from developments abroad. Growing concerns over peripheral eurozone sovereign debt sent global equity markets lower which predictably led to safe haven inflows into the Japanese currency.

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