The military skirmish between North and South Korean troops threatened to spark a war. The news quickly accelerated safe haven flows with markets already seeking shelter as euro zone sovereign debt woes continue to fester. Sentiment and financial markets tumbled as did so-called “riskier currencies” which came under significant selling pressure. As usual, the safe haven US dollar, Japanese yen, Swiss franc and commodities such as Gold were the main beneficiaries from risk averse moves. Eurozone worries could still boil over after Ireland was warned to quickly agree on an emergency budget in order to receive aid on time. German officials even called into question the very existence of the single currency and the euro fell to almost two-month lows against the US dollar as a result. Spanish yields rose again and there is now a serious threat of Portugal, as well as Spain, being dragged into the sovereign debt storm.
Sterling
Sterling surged against the under-fire euro and other so-called “riskier” currencies, however, as expected, fell against the safe haven US dollar, yen and Swiss franc. Further weighing on the pound was the British Banker’s Association reporting that mortgage approvals in October fell to 30.7k.
US dollar
The US dollar benefited further from safe haven flows after a revision to US growth last quarter came in a touch stronger than expected. US GDP was revised up to a 2.5 per cent annual rate during the third quarter from the 2.0 per cent pace that was first reported. Investors had forecast a 2.4 per cent expansion in Q3.
Euro
The euro crumbled reaching significant lows against several major rivals including near 2-month lows against the US dollar. Tensions between North and South Korea added to worries over sovereign debt in the eurozone, compounding the single currency’s weaker tone. The euro had already been under significant pressure as concerns over the Irish government and the country’s banking sector worsen. Yields on Spanish bonds rose further and there are serious fears that Portugal and Spain may be forced to follow on from Ireland in seeking emergency funding.
Japanese yen
A Japanese bank holiday helped to thin currency market liquidity, which is notorious for exaggerating exchange rate movements. Although the yen rose broadly as a result of a military skirmish in the neighbouring Korean peninsula, the Japanese currency fell against the more favourable US dollar.
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