US Federal Reserve chairman Ben Bernanke has not ruled out further stimulus measures as negotiations over deficit reduction broke down with once source saying US President Barack Obama “walked out”. The final blow to the dollar came when Moody’s warned that its AAA rating of US debt could be in jeopardy not only if the debt ceiling is not risen, but also if deficit reduction measures are not taken, which added a new twist to the outlook. As a result, the dollar experienced heavy losses. In the EU, focus will centre on Italy where a debt auction for €5 billion is taking place. Investors will want to measure the degree of demand for such debt and use it as a confidence gauge. In the UK, sterling was lifted against a falling dollar, but only after weak economic data was released on the UK labour market. Heightened fears in financial markets have pushed the Swiss franc to record levels against the US dollar and euro.

Sterling

The pound made sharp gains against a falling dollar, while holding steady against the euro. The UK claimant count rose by its fastest pace in two years and the rate of unemployment held steady at 7.7 per cent.

US dollar

The ratings agencies have been busy again and with Mr Obama failing to reach a compromise on budget issues and the Fed’s Bernanke talking about the possibility of Q3, it was all investors needed to hear before selling the greenback.

Euro

Fitch downgraded Greece’s sovereign debt rating deeper into junk territory, suggesting a substantial risk of default. The downgrade came as EU politicians, the International Monetary Fund and European Central Bank wrangle over a second bailout solution for Greece. Weaker-than-expected eurozone industrial output data did not help the general mood.

Japanese yen

The Japanese yen’s rise does not reflect fundamentals. That is the view of the Financial Minister who warned again that moves in the yen were being watched closely. The yen has appreciated recently on the back of safe haven flows.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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