Global equity markets have weakened sharply as renewed eurozone government debt worries continue to weigh on investor sentiment. Yields on benchmark Spanish bonds have jumped above six per cent, which is not far from levels that led to emergency rescues for the likes of Greece and Ireland. As a result, the euro is fast approaching January lows against the US dollar and British pound whilst the safe haven yen is experiencing broad-based gains. The pound, which seems to be attracting safe haven flows out of eurozone investments, is now approaching September 2010 highs against the single currency’s performance against the US dollar and Japanese yen stands in contrast though as global growth and Spanish debt concerns fuel risk aversion into refuge assets.
Sterling
British factory gate inflation came in above market forecasts and therefore dampened still-lingering expectations the Bank of England will expand its money-printing program to stimulate economic growth. However, the pound’s advance to three-month peaks versus the euro, and to 19-month highs on a trade-weighted basis, encouraged traders to cash-in on sterling’s recent climb to leave the UK currency sharply lower against its more safer peers such as the US dollar and yen.
US dollar
economic data is likely to carry added weight over the coming days following last week’s Chinese growth figures that revealed the nation’s slowest economic expansion in almost three years. Renewed concerns about global growth were already in progress after fresh data on unemployment highlighted some weakness in the world’s largest economy. Subsequent demand for safe haven assets has helped the US dollar firm across the board, particularly against its main rival, the euro, with eurozone peripheral debt concerns also weighing heavily on the single currency.
Euro
The euro opens within striking distance of January lows against the US dollar, dropping by over one per cent after yields on 10-year Spanish government bonds spiked to levels considered to be unsustainable in the long-run. The cost of insuring against a Spanish default has also risen to near record highs as confidence in ’s ability to rebalance its public finances becomes almost non-existent.
Japanese yen
The yen rallied to five-week and seven-week highs versus the British pound and euro respectively as traders continued to seek shelter in refuge currencies in response to growing evidence the Spanish economy may be next in line for a Greece-like international bailout. Those concerns are also overshadowing news that will allow its tightly controlled yuan to trade more freely in future to better reflect market forces.