Daily currency report

The euro’s downfall has moved up a gear after borrowing costs for France rose following its attempt to auction long-dated bonds. Risk aversion saw the euro plunge to almost 16-month lows against the US dollar with turbulence in Europe’s banking sector another worry for markets. Overnight lending at the European Central Bank, a kind of safe haven for banks, has risen to record levels suggesting a credit crisis is also a real possibility now. Lower appetite for risk is hurting higher yielding currencies such as the New Zealand dollar while emerging market units such as the Polish zloty are also suffering from selling pressure. In addition, the zloty is being hampered by ongoing problems in Hungry where the country’s borrowing costs are spiralling out of control. Sterling, however, is proving to be a little more popular after robust data on the UK’s services sector tempered concerns the British economy is facing another recession. Similar to the dollar, sterling is now approaching 16-month peaks against the euro with the single currency also crumbling to new 11-year lows against its Japanese counterpart.

Sterling

Growth in Britain’s dominant services sector surprisingly picked up pace in December suggesting the UK economy may still avoid another recession. Sterling has now appreciated by over 2 per cent against the euro since the beginning of 2012.

US dollar

Demand for the US dollar is showing no signs of abating as the number of investors seeking refuge in the greenback from Europe’s disaster swells at a frightening pace. Not only that, recent economic fundamentals imply the US economy is now in a much better shape than the single currency area where a fall into recession is almost a certainty.

Euro

The euro slid deeper into trouble after yet more signals the eurozone crisis has entered an extremely dangerous phase in now its third year. French debt auction did little to dampen grave concerns both Spain and Italy will struggle to sustain borrowing costs this year. France sold 10-year bonds at yields sharply higher than the price it paid at a similar sale in December.

Japanese yen

The yen immediately retreated from recent highs after Japan’s Finance Minister, Jun Azumi, fired another warning to markets that authorities still remain vigilant against the yen’s unwelcome appreciation. Mr Azumi acknowledged that Europe’s troubles and a weaker euro is presenting a risk to Japan’s economic wellbeing and the health of its exporters.

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