Volatile shifts in sentiment remain as the theme in financial markets after another explosive day of trading. Stock markets across the globe soared while traders took the euro, and other currencies associated with risk higher at a record pace. The catalyst was the announcement from both Germany and France who promised to introduce new anti-crisis measures by end October. While the euro soared against the broadly weaker safe haven US dollar, sterling experienced a day to forget. Traders appeared to look past last week’s Bank of England stimulus boost and instead focused on rating agency Moody’s decision to downgrade both RBS and Lloyds. Furthermore, investors are becoming increasingly nervous over upcoming UK unemployment data after last month’s spike in the number of people seeking jobless benefits. However, in keeping with recent developments, the more optimistic environment may not last long. So soon after Dexia SA bank needed rescuing by France and Belgium, banks in both Denmark and Greece also appear certain to face bankruptcy. Furthermore, China was forced to offer support to its banking sector as European troubles spread east.
Sterling
In an unexpected turn, the pound endured another forgettable session after UK economic worries came back to haunt the still vulnerable British currency. Although the pound is still someway short of any notable lows, its tumble against the euro may well advance after both Germany and France assured financial markets that new radical anti-crisis measures will be announced by the end of this month.
US dollar
The US market was closed to observe the annual Columbus Day holiday. In combination with market holidays in both Canada and Japan, the reduced liquidity proved to be detrimental for the US dollar as thinned volumes helped to amplify the greenback’s downfall. Global stock markets rallied at a record pace as Germany’ and France’s commitment was enough to spark a frenetic shift back into more risky assets such as the euro, Australian dollar and Scandinavian currencies.
Euro
The euro rose by an incredible three cents against the US dollar after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged on Sunday to introduce new support measures for eurozone banks within three weeks. Furthermore, the pair reaffirmed their commitment to finding a long-term solution for the Greek economy. Despite the announcement lacking any real detail, the strong rhetoric was enough to dampen fears of an all-out financial meltdown across Europe. Consequently, the euro produced its best one-day performance in almost a year against the US dollar as traders swiftly increased their risk appetite.
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