There was a show of intent but lack of real action following the G7 gathering in Marseille at the end of last week, although there was a clear divide on how the eurozone should contain its debt crisis. That very issue may explode this week after the euro crumbled to record lows against several rivals late, most notably to a 10-year low versus the Japanese yen. Developments in Germany suggest the zone’s largest economy could be preparing to isolate itself from a Greek debt default which is growing more likely. There is currently a noticeable shift in sentiment as stocks fall, the US dollar and yen advance, and investors turn away from high yielding and emerging market currencies. The Swiss National Bank’s vice-like grip on the Swiss franc may even allow sterling to re-enter the frame as a stable alternative in such uncertain times with the pound already at six-month highs on the euro.
Sterling
A critical line-up of event risk scheduled for this week could go a long way in shaping the pound’s near-term outlook although broader market developments may still continue to dictate trading levels. Technical factors saw the euro plummet against the US dollar, allowing sterling to advance to almost six-month highs on the single currency.
US dollar
It appears that any news is good news for the US dollar right now. Analysts remain unsure on whether the US Federal Reserve will embark on another round of quantitative easing or if President Obama’s audacious jobs plan will gain the necessary backing. However, these questions were sidelined at the end of last week with the euro’s shocking dive persuading currency players into the security of the dollar.
Euro
Evidence suggests speculative attacks on the euro, driven by the lack of cohesion between eurozone leaders in dealing with peripheral government debt, is again in motion. The euro’s resilience in the face of significant headwinds has been rather surprising. However, a culmination of events saw the single currency crumble to a 10-year and six-month low against the safe haven Japanese yen and US dollar respectively. The growing possibility of a Greek debt default along with a spike in insurance costs for Italy and Spain were factors behind the incredible moves.
Japanese yen
The Bank of Japan may be forced back into currency markets sooner than expected as global risks escalate, forcing market players into trimming their risk exposure. In particular, the eurozone debt crisis looks certain to boil over if Friday’s currency moves are anything to go by after the euro crashed to a 10-year low against the yen.
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