Eurozone developments continued to dominate currency markets. Investors swiftly abandoned the euro and other riskier assets after Moody’s Investor Service downgraded their rating on Spanish debt. The move came shortly after the agency had also warned that France can no longer be guaranteed its coveted triple-A status. The markets relentless focus on the fiscal health of eurozone nation’s dealt another blow in the group’s ability to come up with a drastic fix by the end of this week. Accordingly the euro tumbled, taking with it emerging market and growth linked currencies. The pound also endured another forgetful day after UK consumer price inflation rose to three-year peaks which presented another major headache for the Bank of England. While demand for refuge currencies such as the US dollar and Japanese yen gathered momentum, the mood in markets changed once more on media reports Europe are preparing to increase the European Financial Stability Facility from €440 billion to some €2 trillion.
Sterling
Sterling has become even more vulnerable after record high inflation figures were added to a long list of difficulties for the UK economy. While UK growth remains anaemic and unemployment at 17-year peaks, the shocking number is likely to raise serious question marks over the Bank of England’s latest quantitative easing adventure.
US dollar
The US dollar retraced lost ground against the euro and pound after weak Chinese and German data helped temper demand for riskier investments. However, that picture soon changed after a stronger than forecast increase in US wholesale price data reduced concerns of weak inflation hampering the US economy. Additionally, Bank of America reported stronger third quarter profits while US home builder sentiment picked up. As a result, US stock markets recouped earlier declines and investors rediscovered their appetite for higher yields.
Euro
Performance measures tracking demand levels for French government bonds fell to record lows after rating agency Moody’s had warned that it could review the nation’s top credit rating. Doubts about the eurozone’s second most influential member has increased uncertainty about its ability to put up more capital as part of the much anticipated strategy to solve the region’s debt crisis.
Japanese yen
Investors appear very reluctant to unwind their safe haven yen holdings in spite of reports that Japanese authorities are preparing to put together a specialist group of officials in order to tackle the yen’s export-reducing strength.
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