Fears over the European debt crisis have resurfaced and nervousness over the strength of the global recovery is rising, prompting investors to move money into the safe-haven US dollar, Swiss franc and Japanese yen. Weaker than expected economic data in China and the US has heightened concerns over the strength of the global recovery, while at the same time attention has turned to the sustainability of Italy’s fiscal position. The shares of UniCredit bank sank on the back of news that there could potentially be a rift in the highest levels of government over austerity measures and in front of the banking stress tests that are scheduled for July 15. Not only did banking shares drop, but the gap between yields on Germany and Italian debt grew, indicating a lack of investor confidence.

Sterling

Higher inflation data could lend some support early in the week for sterling, but as the week wears on, sterling could come under some selling pressure as nervousness over the release of a jobs report grows.

US dollar

Weak economic data from China and the US has resulted in safe haven flows into the Swiss franc, US dollar and Japanese yen. Investors have turned to safe havens as renewed fears of weaker global growth resurfaced. In China, import growth slowed to its weakest level in 20 months, suggesting that the string of interest rates increases and higher reserve requirements at banks are taking their toll on the economy.

Euro

The euro is back under pressure and investors are taking flight into safe haven currencies. Equity markets are expected to open lower as well. UniCredit, an Italian bank, saw its share price fall on rumours that there was a rift between Italian Prime Minister Silvio Berlusconi and Finance Minister Giulio Tremonti. Mr Tremonti has just finished authorising a three-year austerity programme, but comments that he was not a “team player” could have been taken out of context according to Mr Berlusconi, who was attributed to making the comment. Banking shares fell as a governmental rift threatened to derail austerity measures. That, compounded with a slower growth, prompted investors to shift focus back to Italy, particularly since the European bank stress tests are scheduled to be released on July 15.

Japanese yen

The Japanese yen is likely to continue firming as safe haven flows into the currency continue.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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