Risk aversion remains the driving force in the markets as investors continue their flight to safety. The greenback and the euro remain largely under with the greenback staging a limited recovery as markets weigh up the longer term direction of the dollar. The European Central Bank were seen buying Spanish and Italian debt after it said it would “actively implement” its bond-buying program but the purchases did little to alleviate concerns that the eurozone’s debt crisis is spreading to core countries. Deepening investor aversion to risk amid global growth and debt fears in the US and Europe has actually led to gains for the dollar against its risky, growth-sensitive counterparts such as the Canadian dollar and Australian dollar. The less risky yen and Swissie remain reluctant recipients of broad based buying, as both Central Banks stand poised to intervene in a market that is becoming increasingly difficult to manipulate. Ironically US treasuries soared, despite Standard and Poor’s downgrade, and investors also sought gold as a safe haven, which was up 3.1 per cent at $1,714.09 an ounce, having hit a record $1,753 earlier.
Sterling
Sterling advanced to trade near two-month highs against a weak dollar after a US credit downgrade led more investors to sell the greenback, with the UK currency’s gains also supported by growing concerns about eurozone debt. Sterling’s gains, however, could run out of steam if the Bank of England cuts its growth forecast in its quarterly inflation report due on this week.
US dollar
Despite a slight retracement in dollar losses the greenback remains under pressure as the S&P downgrade along with more fundamental concerns over the health of the US economy remain at the fore. The Australian dollar briefly dipped below parity against the US dollar for the first time since March before paring back losses as shares bounced from the lows seen.
Euro
ECB bond purchases have done little to lift the negative sentiment that has enveloped financial markets, with analysts stating they still see more room for the euro to fall.
Japanese yen
The yen continues to appreciate despite threats of further intervention to devalue the yen. Yen strength negatively impacts Japanese exports and market participants expect Japanese authorities will re-enter the market if the dollar falls to 77.10 yen; the level at which the central bank intervened last week.
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