All eyes will be on Spain as markets prepare themselves for Madrid’s latest Budget, and details about how much funding the Government will need to hold off a banking collapse in the eurozone’s fourth biggest economy. Preparations have clearly been unhelpful for the euro, with the single currency now trading some way below its recent highs, while currencies on the more risky side of the market, like the Polish zloty, are also struggling. The US dollar continued its recovery as traders continue to loosen their hand on the euro, with the safer greenback reaching two-week highs against a basket of currencies. The yen also played its usual anchor role in uncertain currency markets but did face some pressure.

Sterling

The Confederation of British Industry’s measure of retail activity rose above market forecasts but did little to strengthen the pound as investors struggle to look past troubles in Spain.

US dollar

The US dollar spent another session yesterday pulling itself together, having spent much of the past two months in freefall before the Federal Reserve put an end to speculation and launched its third quantitative easing project on September 13. Since then the greenback has climbed by as much as two per cent against a basket of currencies and is poised to add more to those gains. Investors appear to have put aside worries about US monetary policy and have again sharpened their focus on Europe’s fiscal policy.

Euro

Global markets are bracing themselves for what could turn out to be Europe’s biggest test in weeks as Spain prepares to unveil its latest Budget and details about how much funding it needs to hold off a banking collapse. Protests in Madrid have turned ugly this week with many fearing the Spanish Government will deliver even harsher austerity measures with a view to entering the European Central Bank’s bond-intervention programme further down the line. The euro’s sharp decline since reaching four-month highs against the US dollar on September 14 reflects widespread concern that uncertainty in Spain may quickly unravel Europe’s latest efforts to ease the debt crisis.

Japanese yen

Demand for the safer Japanese yen has surprisingly eased over the past two days despite political tensions in Spain threatening to undo the European Central Bank’s attempts to ease the debt crisis. The yen has amassed notable gains since the Bank of Japan decided to add to its monetary stimulus programme last week, but those gains have also increased talk in the market about Japanese market intervention.