Sterling edged higher against the broadly under pressure euro as investors fret that eurozone policy makers are falling too far behind the curve in dealing with the debt crisis. Last week’s figures exacerbated global growth concerns after economic indicators from several key economies fell short of expectations while New Zealand suffered a shock ratings downgrade. Greece has announced that it will be unable to meet fiscal targets and the euro’s decline implies that investors now expect contagion to spread across the region. Those fears resulted in stock market values worldwide, falling last quarter at a pace reminiscent of the 2008 financial crisis. Consequently, the US dollar and yen have surged and that momentum may now accelerate. Demand for US Treasuries and other safe havens has also reached record levels with secure Swiss assets seemingly off limits. The Swiss National Bank will probably step up more intervention rhetoric after a gauge of future economic activity for the Alpine country fell further.
Sterling
The pound finally broke free from the fairly tight range it had been confined to against the euro at the end of last week. Sterling ended 1.2 per cent up on the under-fire euro as investors fret that eurozone leaders are too find behind the curve in dealing with the debt crisis. Yet global growth concerns kept the UK currency pinned back against the US dollar and yen, currencies which look set to benefit from more risk adverse behaviour.
US dollar
A string of better-than-expected statistics on the US economy failed to ignite any real appetite for carry trade activity. Investors overlooked some comforting US reports and instead, the greenback exploded past key resistance levels against the euro, and as a result, finished the third quarter having advanced by over eight per cent versus the single currency. The dollar’s current momentum advocates clearly that investors fear a global economic downturn is on the horizon.
Euro
The main stock indices in both Germany and France fell by over 25 per cent during the third quarter of this year which represents the biggest period decline since 2002. Meanwhile, over the same phase, the euro declined by over eight per cent against the US dollar and reached 10-year troughs versus the yen. Those figures are likely to convince even more investors to part with euro-denominated assets over the coming months, as dark clouds continue to gather above the euro area.
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