Daily currency report

European Central Bank president Jean-Claude Trichet has placed the responsibility on eurozone leaders to make the next move in order to address the current government debt crisis which could yet spark another global meltdown. Officials from the 17-nation group, along with the US Treasury Secretary, will attempt to come up with new plans as Greece nears default and contagion continues to spread to core nations. The European Central Bank, in an unprecedented move, extended US dollar swap arrangements with the US Federal Reserve in coordination with other leading central banks. Investors took the declaration as an immediate excuse to unwind heavy safe positions and the US dollar and yen were sold off sharply. Emerging market currencies such as the Czech koruna and Polish zloty surged as did the euro. The pound also benefited despite more evidence of declining consumer spending while high-yielding Scandinavian currencies such as the Swedish krona advanced further. Naturally, as stock markets rallied led by banking shares, gold fell sharply.

Sterling

Sterling jumped across the board on news of the European Central Bank’s unexpected attempt to help improve funding across Europe in coordination with other major central banks. The news will help reduce fears of a credit squeeze across Europe as a result of the ongoing debt crisis and the pound immediately benefited from the pick up in risk appetite.

US dollar

The US dollar tumbled broadly after an exceptional move from the worlds leading central banks helped to allay fears of an immediate credit squeeze which prompted a sharp unwinding of risk adverse positions. Stock markets rallied on the news after coming under continuous pressure in recent days with the shift encouraged further by a better than expected reading of US industrial output.

Euro

The European Central Bank stunned markets by extending US dollar swap facilities in coordination with the US Federal Reserve and four other major central banks. The ECB agreed three separate operations over the comings months where it will offer euro area banks as many US dollars as they need in order to cover short-term lending. Central banks will work together to provide dollar liquidity in an attempt to avoid another credit squeeze.

Japanese yen

Along with other low-yielding currencies, the yen was dumped in favour of more attractive assets as sentiment across the globe continues to rip-saw. The Bank of Japan will also participate in the European Central Bank’s move to support lending to commercial banks and the yen’s subsequent fall on improved risk appetite should keep any yen intervention talks quiet for now.

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