The flight into safe haven assets which has been the dominant theme in currency markets since Greece’s inconclusive May elections turned more forceful following the latest gathering of eurozone officials. The summit was anticipated to help recover plummeting confidence in the eurozone. However, reports suggest the only planning being done at this stage has been talks between officials on how to cope with Greece’s looming exit. Investors immediately reacted to the news, taking stocks lower whilst increasing demand for the safe haven US dollar and yen as well as bolstering their reserves of highly-rated government bonds such as German Bunds, UK Gilts, and US Treasuries. The US dollar surged to 20-month highs on a trade weighted basis, supported by its rise to 22-month peaks against the euro. The yen also firmed broadly and is now within striking distance of 2012 highs against the beleaguered single currency. The panic helped temper negative sentiment towards the pound after dovish Bank of England minutes were compounded by data showing a record fall in British retail sales. Demand for growth-linked currencies such as the Australian dollar is fast drying-up, while European risks are also hitting commodity-linked currencies hard. Scandinavian units such as the Swedish Krona have held up relatively well though, helped by the region’s more encouraging fiscal programmes and wealth of raw materials.
Sterling
More dovish than expected Bank of England minutes weighed on the British pound while stronger demand for the safer US dollar took to fresh two-month lows. Notes from the central bank’s May 9-10 meeting showed policymakers had grown more concerned by Europe’s debt crisis which was damaging ’s economic recovery and demand for its exports.
US dollar
Europe’s debt crisis moved up a gear on after the eurozone summit failed to convince markets that will not spark another global crisis by dropping out of the euro. As a result, traders continued to force a financial crisis-type move into the US dollar as risk appetite evaporates and the need for safe havens accelerates.
Euro
The euro crashed through key support levels and opens trading at 22-month lows versus the US dollar after a meeting between eurozone officials did little to allay fears that leaders are still at odds on how to tackle the area’s mounting economic an debt risks. Although informal, the meeting was anticipated to draw a response from members of the eurozone. As the threat of requiring a bailout continues to run parallel to the growing likelihood of exiting the common currency bloc, the single currency has lost almost six per cent of its value against the dollar through May.