Daily currency report

There seems to be no end in sight for the current debt and confidence crisis gripping the eurozone after France became the latest victim. The eurozone’s second, and world’s fifth largest economy saw its borrowing costs surprisingly spike after local banking shares plunged on fears of their exposure to peripheral eurozone government debt. Consequently stock markets plunged across Europe and later in the US, despite brief recovery with indices in Germany, France, Italy and Spain falling by over five per cent on the day. Therefore, the euro still remains under serious pressure, particularly against the Swiss franc. However, the Swiss National Bank followed up on last week’s surprise rate cut by announcing further currency weakening measures which have helped ease franc gains for now. The outlook for sterling was further clouded.

Sterling

The Bank of England delivered its quarterly inflation report and its frank assessment of growing risks to the UK economic recovery sent sterling into a spin. The central bank’s Governor Mervyn King reduced growth forecasts and expects inflation to peak at around five per cent later this year, which explains why the BoE is still being forced to keep monetary policy unchanged.

US dollar

The US dollar and US government debt still remains a security net for investors despite the US recently losing its top credit rating. Crumbling stock markets on US growth and eurozone debt fears continue to create worldwide panic prompting key global figures, including US President Barack Obama, to make emergency phone calls. As a result, the US dollar advanced against almost all rivals including the Swiss franc and Japanese yen during trade, while demand for US Treasury bonds increased rapidly.

Euro

The euro suffered broad-based losses after borrowing costs for France surprisingly spiked. Local banks’ exposure to peripheral debt was the major concern, although the events now throws into question the credit worthiness of French debt, soon after the US suffered a downgrade.

Japanese yen

The yen came within a whisker of a record high against the US dollar as investors continue to seek refuge from ongoing turmoil in financial markets.

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