Investors have cautiously moved back into the euro after Italian Prime Minister Silvio Berlusconi stepped down as former European Commissioner Mario Monti was asked to form an emergency government. The appointment of Mr Monti has given markets hope that a more technical leadership will give Rome a significantly better chance of reducing its debt pile. While the euro rallied, the US dollar fell sharply across the board with the prospect of more quantitative easing still a concern for market players. Reduced demand for safe haven currencies is not only hurting the dollar but the pound too, given its role as a refuge from European troubles. The New Zealand and Australian dollars have moved higher, not only from the markets’ more “risk-on” approach to trading, but also after positive data revealed in New Zealand.
Sterling
Sterling managed noteworthy gains against the US dollar with markets feeling a little more at ease after approved austerity measures designed to convince global investors that can cut down its mountain of debt. Traders fittingly dialled back on safe haven flows which also meant sterling weakened against its more yield-appealing rivals such as the Australian dollar and South African rand.
US dollar
A more encouraging political landscape across took shape which immediately reduced demand for the more defensive US dollar. The greenback fell sharply against the euro, pound and yen and is expected to remain week as growth data from the Japanese economy has given equity markets a boost.
Euro
Former European Commissioner Mario Monti, regarded as an expert in economics, has been asked to head up the new emergency government in Italy charged with renovating dire public finances while at the same time promoting growth. As promised, former Prime Minster Silvio Berlusconi stepped down shortly after successful votes on government spending cuts, thus allowing a technical expert in economics to take charge of the debt-laden country. The prospect of technical leadership in , as opposed to political, will certainly give markets hope that the eurozone’s third largest economy may be able to bring down its borrowing costs which last week spiked to 1997 highs. In response to that feeling, traders moved quickly to buy the euro, allowing the single currency to post broad-based gains which may be brought forward into this week.
Japanese yen
Japan’s earthquake-ravaged economy exited recession in remarkable fashion with a Q3 growth figures revealing a 1.5 per cent expansion from July through to September, perhaps easing pressure on the Bank of Japan to take further action at its November monetary policy meeting.
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