Confidence tumbled after the German Finance Minister, Wolfgang Schaeuble, warned markets not to expect any miracle cure when EU leaders next meet. While markets were anticipating earlier promises of a comprehensive solution from both France and Germany, Mr Schaeuble suggested that eurozone politicians are still a long way from ending the continent’s debt crisis. Accordingly, the euro dived, stock markets fell sharply and investors once more sought after the security of the US dollar and Japanese yen. Risk aversion was then limited somewhat after US industrial output figures beat expectations. Sterling took advantage of the weaker euro while the Swiss franc was again in demand. However, data from China revealed a sharper than expected decline in third quarter growth, reviving concerns of slowing activity in China dragging on global growth. Consequently, commodity linked currencies such as the Australian dollar took a hammering given China’s incredible thirst for raw materials.
Sterling
Sterling experienced a relatively calm session with little on the UK economic calendar to really stir demand. The pound did however manage to recoup a small amount of lost ground against the euro. Apprehension ahead of Sunday’s deadline, by which eurozone leaders are expected to announce their comprehensive solution to the debt crisis, could continue to pressure the single currency. Still, UK consumer price inflation data should go a long way in determining whether the pound will be in a position to take advantage.
US dollar
Stock markets across the globe stumbled after comments from Germany suggested that eurozone leaders are nowhere near ending the contagious debt crisis just yet. Investors immediately ran for cover which naturally benefited the safer dollar while currencies linked to either growth or commodities suffered a real hammering.
Euro
The euro fell sharply soon after breaching fresh 1-month highs versus the US dollar. The sudden turnaround was technical to an extent with investors deciding to cash in on the single currency as it approached September peaks. However, comments from the German Finance Minister, Mr Schaeuble, were the real catalyst after he said that EU leaders may only outline their plans in draft at their October 23rd gathering. Recent optimism had been underpinned by expectations of a game changing announcement from eurozone leaders and his comments where a major blow to confidence. Mr Schaeuble also went on to say that governments are desperately trying to persuade banks to accept more substantial losses on Greek debt which is going to be met with firm resistance.
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