Stock indices plunged deeper into the red as investors accelerated risk adverse behaviour at an alarming pace. Upbeat manufacturing performance figures from the UK and US economies did little to lift the gloom as Europe moved one step closer to catastrophe. The US dollar and yen surged across the board as a result while the pound advanced against growth and commodity-linked currencies as investors run out of places to hide. The Reserve Bank of Australia considered cutting interest rates while Japan urged Europe to tackle their debt troubles which is risking an extreme overvaluation of the Japanese currency. European Central Bank President Jean-Claude Trichet is scheduled to address financial markets. Failure to announce that some kind of solution is in the offering could send the euro spiralling to new lows.
Sterling
Investors overlooked a fairly healthy looking review of UK manufacturing, sending sterling sharply lower against the US dollar. Although, the pound is becoming accustomed to declines against its lower risk rivals as markets continue to seek shelter from swelling sovereign debt troubles in Europe, it is becoming a little more attractive in comparison to growth and commodity-linked currencies as traders uncompromisingly trim as much risk exposure as possible. Subsequently, the pound is now fast approaching highs of seven months on the Aussie dollar; four months against the Swiss franc; 10-months against the Canadian dollar and March 2011 peaks on the euro.
US dollar
Demand for the US dollar and US government bonds is gathering pace at an alarming rate as investors across the world run for cover from European troubles. The US dollar is now within touching distance of 10-month highs on the euro after Greece moved one step closer to bankruptcy, thus heightening concerns of another financial meltdown.
Euro
The eurozone sank deeper into disaster territory following Greece’s earlier admission that it will miss budget targets put forward by its creditors. Although the Greek Prime Minister George Papandreou and his fellow Cabinet members are trying desperately to get the country’s ‘fiscal-game’ back on track, it appears that they are quickly running out of time. As it stands currently, Greece will not qualify for further aid and its imminent default would send shock waves through the European banking sector. To that end, Greece may yet receive additional funding in order to safeguard confidence in eurozone government debt. The European Central Bank continue to be forced into buying Italian and Spanish debt whilst the cost for insuring German debt has risen dramatically to a new record high.
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