Daily currency report

A number of headlines are turning currency markets on their head and consequently driving strong flows back into refuge assets such as the US dollar. Safe haven currencies are in demand and the outlook for a turnaround based on good news is fast declining after MF Global, the US investment giant, filed for bankruptcy. However, the primary concern in markets is the announcement by the Greek Prime Minister, who called for a referendum on Greece’s eurozone membership. To call such a referendum, which some lawmakers are even calling illegal, after last week’s marathon manoeuvres by EU leaders to save the country from bankruptcy, has changed the outlook for the euro completely. Not only has this story rattled markets, but weak manufacturing data released in China alongside the downward revisions to OECD growth forecasts for the US and EU have brought global growth closer to recession. Furthermore, the Reserve Bank of Australia unexpectedly cut interest rates, citing concerns over Europe’s sovereign debt problems.

Sterling

Sterling produced a remarkable turnaround, recovering a significant percentage of last week’s declines as traders reassessed their Forex portfolio’s going into such a busy week of critical events. UK data had minimal impact on markets although the Bank of England did report that consumer credit picked up in September but then in contrast mortgage approvals declined over the same period. Instead, Japan’s shock intervention to weaken the yen dominated early trade and provided sterling with an immediate boost. Sterling also rose sharply to three-week highs against the euro, breaking past critical resistance levels as analysts seriously question whether the eurozone’s latest fix for serial sovereign borrowers will actually put an end to the crisis.

US dollar

The US dollar is poised to dominate FX markets after a number of negative headlines look set to promote another strong shift back into refuge assets such as the greenback.

Euro

After Europe announced details on how it intends to end its two-year-long fiscal shambles, the euro rallied at a record pace which suggested that the plan was deemed comprehensive enough to tackle the area’s debt problems. Yet the single currency came back under pressure, falling sharply against the US dollar and sterling on concerns that France and Germany have simply managed to delay the inevitable as Italy moved a step closer into the eye of the storm.

Japanese yen

Japan reportedly sold a record 10 trillion yen (£80 billion), more than twice the size of its August intervention, in order to curtail the yen’s excessive appreciation on safe haven demand and speculation.

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