Fear of another peripheral euro zone economy joining Ireland and Greece in the emergency room intensified, promoting another strong move into safer assets such as the US dollar, yen and Swiss franc. Ireland’s €67.5 billion bailout has done little to ease fears of contagion spreading to other fiscally strapped peripheral nations. Yields on government bonds, which represent the premium investors demand for lending, reached new record highs for both Italy and Spain on Tuesday, the zone’s third and fourth largest economies respectively. With weaker members finding it increasingly difficult to borrow their way out of trouble, investors are losing confidence in the single currency, and fast. The euro tumbled to new two-and-the-half-month lows against the greenback and extreme risk aversion is also weighing on other higher-yielding currencies. Sterling also tumbled to two-and-the-half-month lows against the broadly stronger US dollar but did manage to post fresh 10-week peaks against the under-fire euro. Both the Canadian and Australian dollar fell overnight after Q3 growth figures in their respective economies rose disappointingly below expectations. Strong Chinese manufacturing data encouraged Asian investors which helped the yen find further support despite more evidence of a Japanese economy in decline.
Sterling
Sterling continued to slide, reaching two-and-the-half-month lows against the dollar, 1 month lows against the yen and approaching a two-week trough against the Swiss franc, as safe haven buying picked up amid ongoing turmoil in the eurozone. However, with peripheral euro area debt keeping the single currency under incredible pressure, this allowed sterling to advance to record two-and-the-half-month highs.
US dollar
The US dollar remains the safest place to be for investors fleeing troubles in the eurozone’s peripheral states. The greenback is broadly stronger and reached new two-and-the-half-month highs against the under-fire euro. However, dollar gains did ease overnight after mixed US data reminded markets of the economy’s patchy recovery, and as a result the greenback fell against the Japanese yen.
Euro
Euro losses deepened and after reaching nine-month highs on November 4th, the single currency has now tumbled by over 10 per cent against the US dollar.
Japanese yen
Risk aversion snowballed, sending investors flocking into safer assets, mainly the Japanese yen. The yen reached one-month highs against the pound and new two-and-the-half-month peaks against the euro, as the euro zone crisis moved up a gear.
Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/