The eurozone sovereign debt crisis is back at the top of the agenda after one of Spain’s largest regional authorities asked the government for a financial lifeline. Investors therefore began revising their timeline for when the Spanish government itself may come calling for international assistance, taking the euro to new record lows against a number of its rivals, including the British pound.

Sterling

The British pound having shed almost one percent of its value against the safe haven US dollar after further evidence Spain could soon call for an international bailout. But at the same time sterling reached another fresh 3½-year high against the debt-stressed euro as investments continue to pour out of the euro area in search of safer ground.

US dollar

Under pressure from speculation about the Federal Reserve’s quantitative easing plans, the US currency is now back on the front foot as Europe’s debt fiasco climbs back to the top of the markets watch list. However, there is still every chance that worries about US monetary policy could put the dollar back in reverse ahead of growth data. US economic growth is forecast to have slowed markedly over the April to June quarter which may spur the Federal Reserve into more monetary easing at its next meeting on August 1.

Euro

The euro plunged to new depth and will be under a mountain of pressure after Valencia started a line of debt-loaded regional authorities queuing up seeking emergency assistance from the Spanish government. Europe’s shared currency hit an 11-year low against the Japanese yen and new multi-year troughs versus the British pound and US dollar. Economists’ have now stepped up analysis on when Spain could become the next victim of the debt crisis, and whether the euro zone has enough in its locker to support Madrid.

Japanese yen

The Japanese yen has flexed its safe haven muscles once again, rising to 11-year highs against the euro after events in Spain put traders on red alert about a potential bailout for the eurozone’s fourth biggest economy. The yen is also up by as much as two per cent against the British pound ahead of British growth data that is expected to force the Bank of England to adopt even looser monetary policy to pull the economy out of recession.

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