The euro and UK pound fell sharply after local manufacturing data from both economies fell worryingly short of market forecasts, thus raising doubts over growth prospects. Switzerland remains the number one destination for shelter as the Franc continues to rocket to new all-time highs. Safe haven flows into the yen were checked though, helped by what looked like technical factors as well as a more direct warning from Japanese officials looking to protect local exporters. The Reserve Bank of Australia held interest rates at 4.75 per cent but signalled their intentions to continue hiking should inflationary pressures persist which supported the Australian dollar. US developments helped improve the mood in currency markets to some extent after the compromise deal reached on Sunday night between the Republicans and Democrats, passed its first vote.
Sterling
Sterling tumbled across the board after this month’s shocking manufacturing PMI confirmed that the UK economy is really beginning to wobble. The UK’s conservative-led government continues to press ahead with spending cuts in order to preserve the country’s credibility and coveted triple-A credit rating. It seems though that this is coming at a cost and the figure laid bare the current predicament for both the government and Bank of England.
US dollar
The US government took further steps towards avoiding default on its debt obligations after Sunday’s last-gasp deal to raise the current borrowing limit passed its first vote. The proposal would see the US debt ceiling rise from $14.3 trillion to almost $16.5 trillion coupled with plans to cut the country’s deficit by around $2.4 trillion over the next 10 years. The exact details are still unclear and therefore markets are still unsure whether or not the move will be seen as a comprehensive solution in order to avoid a ratings downgrade.
Euro
The euro remains on watch right now, falling through another all-time low against the Swiss franc as investors begin to question the strength of the single currency area. Italy, the zone’s third largest member with an enormous thirst for borrowing is under scrutiny. Political infighting over austerity plans is weighing on investor confidence, a very similar situation to Greece, Portugal and Ireland.
Japanese Yen
Although inconclusive as yet, the yen rose to an all-time high against the US dollar with activity suggesting that technical barriers then immediately sent the yen in a reverse direction. The picture implies that traders are almost certain that Japanese authorities will intervene in currency markets in order to protect their battered exporters against the rising yen.
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