An interest rate cut by the Reserve Bank of Australia coincided with an emergency call between G7 officials, leading to expectations that central banks from around the globe were preparing a collaborated effort to ease pressures in financial markets. The developments helped the euro and other risky assets rebound, with the safer US dollar and yen losing ground quickly.

Sterling

Sterling sank to one-month lows against the euro and stayed under broad pressure ahead of the Bank of England’s monetary policy meeting. With UK markets closed for the Queen’s Diamond Jubilee celebrations, global traders shunned the pound on worries policymakers would sanction another round of money-printing in order to pull the British economy out of recession.

US dollar

Comments from key Federal Reserve officials put the US dollar under early pressure, hinting that another round of quantitative easing was very much on the table. Coupled with the dismal non-farm payrolls data, the remarks encouraged investors to sideline safe haven bids and ramp up on negative dollar bets.

Euro

The euro’s outlook turned even gloomier after rating agency Fitch reacted to the troubles brewing in Spain’s undercapitalised banking sector by lowering Madrid’s credit rating close to “junk”. The announcement was another counterproductive development for the Spanish government hoping to avoid any type of bailout. As a result, the euro was forced to give up gains that had taken the shared currency to 1½-week highs against the US dollar on cautious optimism eurozone governments were preparing a big announcement.

Japanese yen

The yen’s progress was mixed, similar to its close rival the US dollar. An emergency phone call between G7 countries raised hope of a coordinated response to Spain’s banking crisis, while China’s central bank delivered an unexpected interest rate cut that could help boost growth in Asia’s most influential economy. Subsequently, the developments helped soften the yen’s safety appeal although the Japanese currency was soon a target among currency players again after Spain suffered another big setback in its bid to avoid a financial rescue.