Market signals imply that the world is on the verge of another financial meltdown after yields on Italian government bonds finally broke through the critical seven per cent barrier. That is the level which is widely accepted as the point of economic failure and where Greece, Ireland and Portugal were also forced to seek emergency help. However, given that Rome’s debt pile sits at a whopping €1.9 trillion, Europe has no emergency mechanism in place to offer any kind of solution to this threat. Accordingly, the single currency plunged at a record pace, tumbling by 2.4 per cent on the day against the dollar and to eight-month lows against the pound. The dollar’s advance is to be expected given its role as a primary safe haven, however, sterling’s rise was a little more surprising given the UK’s exposure to eurozone risks.

Sterling

In the midst of all the chaos surrounding the eurozone, sterling rallied to eight-month highs against the besieged single currency as investors sought shelter from troubles in Greece and now Italy. UK’s economic data was therefore overlooked although analysts did take note of September’s record high UK trade deficit where a rise in imports outstripped a disappointing increase in exports. Nonetheless, the pound is actually benefitting from a global flight into safer assets, rising across the board and in particular against emerging market and commodity-linked currencies such as the Polish zloty and Aussie dollar.

US dollar

Under extreme circumstances, investors run towards the safety of the world’s largest economy. As equity markets sank across the globe and investors fled Europe’s burning empire, demand for US denominated assets surged.

Euro

The euro is on the verge of a major meltdown after yields on Italian long-term debt spiked to almost 7.5 per cent. Greece, Portugal and Ireland were all forced into accepting emergency bailouts after their borrowing costs rose above this level, which is widely regarded as a major signal of economic failure. Investors appear to have made up their minds on Italy, fearing that Rome will now also fall victim of the sovereign debt crisis and in another worrying sign for Europe, clearing house LCH Clearnet SA, who manage deals on government bonds, unexpectedly raised its deposit requirements for Italian debt.

Japanese yen

Japanese machinery orders fell and alongside worrying trade figures from China, economic fundamentals from Asia are painting a dismal outlook for growth as debt problems from Europe move further into neighbouring continents.

Travelex Global Business Payments Malta, freephone: 80073322, www.travelex.com/mt/