Sterling tanked after a dreadful UK manufacturing report highlighted Britain’s faster-than-expected economic decline which could spur the Bank of England to loosen its monetary policy even more. The yen unexpectedly fell after a report from the International Monetary Fund seemingly gave Japan the go-ahead to intervene in currency markets. The euro has climbed noticeably after President Mario Draghi promised to save the euro and investors will now want to see how hard the ECB can bite after hearing its bark. If investors see a new game changing crisis-fighting strategy then the euro may lead a run into riskier assets. If not, safe havens are set to dominate trading over the coming days.
Sterling
Sterling took another beating following data showing Britain’s manufacturing sector shrinking at its fastest pace in over three years. July’s CIPS purchasing manager’s index on manufacturing activity moved further inside contraction territory to a level of 45.4 from June’s revised 48.4 point. Investors, who had priced-in a much smaller decline, immediately sent the pound crashing to a two-and-a-half-week low against the euro, worried that the Bank of England may soon have to consider an interest rate cut to prop up the recession-hit economy.
US dollar
Cable touched one-week lows after the Federal Reserve failed to deliver any dollar-diluting monetary stimulus at the end of its high-profile two-day meeting. The Federal Reserve did sound more concerned about the US economy’s slowdown and restated its intention to keep borrowing rates near zero at least until late 2014 in order to spur growth.
Euro
The euro has climbed by about two per cent from a two-year low against the US dollar since President Mario Draghi said that the European Central Bank will do whatever it takes to save the euro. Under pressure from Germany to stick to its mandate of ensuring price stability, the remarks caught investors completely off guard and sent stocks and risky currencies soaring. However, hopes of a new sovereign debt crisis-fighting master plan and more bond market intervention could quickly disappear if Mario Draghi fails to carry forward what markets perceive to be a promise into real game-changing action.
Japanese yen
The yen has slipped to one-week lows versus the British pound and fell against the US dollar after a report from the International Monetary Fund said Japan could use intervention to balance speculative moves in currency markets.