The British pound is making strong progress against a faltering euro and may add to Monday’s two-week highs following data that pointed towards a recession in Germany. Business confidence in Europe’s powerhouse economy plunged in September to February 2010 lows, putting the euro in even greater danger of throwing away recent multi-month highs against the US dollar, pound and Japanese yen. Reports that Berlin is now investigating the European Central Bank’s new intervention programme is also breaking investor confidence in Europe’s ability to stem the debt crisis. Added to ongoing worries about Spain and Greece, markets are slowly realising that European politicians are still some way from meeting the ECB’s efforts to help fight the crisis. The uncertainty is clearly bolstering the US dollar, with traders also bidding the greenback to near two-week highs overall in anticipation of the US consumer confidence data. Safe haven flows are also expected to add to gains for the Japanese yen despite another intervention warning from Japan.

Sterling

Sterling climbed above two-week highs against the euro and could use fresh worries about the debt crisis to build a platform for further gains. Investors are once again considering what risks lie ahead for Europe and the uncertainty is reinforcing concerns of a recession in the German economy.

US dollar

The US dollar is closing in on two-week highs on a trade-weighted basis after investors spent another day fretting about eurozone debt and global growth concerns. A sharp drop in German business confidence further aggravated market sentiment, giving the US dollar another stretch of safe haven momentum.

Euro

The euro is clearly losing steam and has now fallen to one-week lows against the US dollar after German business sentiment plunged to new 2010 lows. Germany’s IFO measure of business confidence for September unexpectedly fell and has now declined for five consecutive months, as festering debt troubles in the peripheral countries weigh on the outlook for the eurozone’s strongest economy. Investors have now added worries about a recession in Germany to the risks Spain and Greece currently pose to the euro.

Japanese yen

A Cabinet reshuffle in Japan heading into a new election campaign is set to offer a new role for their intervention-favouring Finance Minister, Jun Azumi. However, Azumi warned markets again that while he is still working in his current role, Japan will continue to take a hard-line approach against any speculation that strengthens the yen and makes life more difficult for Japan’s exporters.

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