Asian equity markets have turned around and are trading in positive territory after the Reserve Bank of Australia announced that it was cutting its interest rates by 25-basis points to 3.5 per cent. The European Central Bank and the Bank of England are scheduled to meet this week to discuss monetary policy. The policy meetings come at the same time G7 Financial Ministers are expected to increase pressure on Germany to do more to help recapitalise banks throughout . Investors are currently pricing in the expectation that central banks will come to the rescue and as a result, the euro has taken back much of last week’s losses and safe haven currencies such as the US dollar and yen have weakened.

Sterling

The pound has seen a heavy bout of profit taking as investors price in the possibility of more quantitative easing by the Bank of England, which meets this week. Furthermore, the sterling has suffered at the hand of a small rating agency that lowered the country’s sovereign debt rating.

US dollar

Factory orders released contributed to a gloomy mood. On the contrary to the normal trend, the dollar declined because the figures suggested an increased chance of a coordinated policy intervention at the G7 level. Investors are now betting that central banks around the world will somehow come to rescue the financial markets.

Euro

The Sentix sentiment survey released dropped to three-year lows, which also has boosted the view that the European Central Bank will come to the rescue with looser monetary policy. This week, Spain will attempt to auction off €1-2 billion in 10-year debt. This will be seen as a litmus test for confidence.

Swiss franc

The Swiss franc sits steady against the euro despite calls for the central bank to lift its peg against the euro. A strong Swiss politician, Blocher and the former head of UBS, Gruebel, suggested that the 1.20 cap be lifted. Left-wing politicians are calling for capital control measures.