Stock markets across the globe plunged at an alarming rate with investor anxiety at an extreme high. The sell-off was similar in velocity to what markets experienced during the financial crisis in 2008. High-yielding growth-sensitive currencies plummeted as traders sought after secure investments such as US treasuries and safe haven currencies. The Swiss National Bank and Bank of Japan sat back and watched the impact of their actions to weaken their respective currencies quickly diminish. The Swiss franc again peaked at a record high against the euro while the yen experienced broad-based gains. Triggering the move was the European Central Bank’s policy meeting and accompanying statement. Jean-Claude Trichet surprised markets by announcing the European Central Bank will resume its controversial bond purchasing scheme aimed at driving down borrowing costs for fiscally-strapped eurozone nations. The euro consequently tumbled and the reaction suggests there is a real fear of Italy or Spain facing a default which brings into question the effectiveness of the collective monetary union.
Sterling
Broader market events continue to dictate the pound’s direction to a certain extent. Despite the UK economic recovery losing steam, sterling remains at two-month highs versus the under-fire euro. The sell-off in stock markets and riskier currencies did see the pound fall to another record low on the Swiss franc but at the same time make up further lost ground in other crosses.
US dollar
The US dollar jumped to multi-week highs against several of its more growth-sensitive rivals as fear drove traders into US Treasury bonds and safe haven currencies. Investors will now focus back from eurozone risks to US growth concerns with the US Non-farm Payrolls and unemployment report due.
Euro
The European Central Bank kept interest rates on hold at 1.5 per cent. What was to follow however not only saw the euro plunge two per cent on the day against the US dollar, but also had global investors question the very existence of the collective monetary union. The euro fell even further, this time to another record trough against the Swiss franc despite the Swiss National Bank’s attempts to stem the rise of the “Swissie”.
Japanese yen
After being ordered to intervene in currency markets to buy the US dollar and sell the Japanese yen, the Bank of Japan in continued response to the yen’s export-crippling strength held interest rates at 0-0.1 per cent. However, the central bank declared another extension of their asset-buying programme attempting to amplify their intervention action.
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