The euro staged a small recovery on comments from Jean-Claude Junker, Chairman of the Eurogroup, who said current mechanisms are big enough to manage contagion threats. Peripheral members are supporting an increase of the €750 billion bailout fund and the first “euro area bond”, while leading nations such as Germany have bluntly apposed any new measures. As a result, the euro came back under renewed pressure as peripheral bond yields rose and sentiment soured, which revived market appetite for safer assets such as the US dollar and yen. Subsequently, the US dollar shrugged off last week’s dreadful unemployment data and the yen was further supported by Chinese concerns prompting more risk aversion. The franc suffered from a strong US dollar with no local news in Switzerland to excite investors. It was the same story for sterling, underpinned by global risks and its exposure to euro zone concerns. The Australian dollar surprisingly held steady after its central bank kept rates unchanged at 4.75 per cent and signalled no rush to tighten monetary policy further.
Sterling
Although domestic fundamentals have, on balance, been pointing to a stabilising economic recovery, the pound remains trapped by broader market activity. Sterling continues to trade near two-month highs against the euro as the eurozone sovereign debt crisis rumbles on. However, as long as global risks persist along with safe haven buying, the pound could stay near two-and-the-half-month lows against the US dollar although heightened fears over US unemployment did give sterling a lift last week.
US dollar
Dreadful unemployment data forced the greenback to three-week lows against the Swiss franc and two-and-the-half-week lows against the yen as investors debated whether the US Fed would be forced to expand its $600b stimulus programme. However, media reports suggesting a possible extension to US tax cuts which would help ease pressure on monetary policy, and renewed focus on euro zone troubles provided the greenback with some breathing space.
Euro
The single currency had initially dropped by almost 0.8 per cent against the US dollar after meetings between eurozone officials highlighted the growing partition. Countries such as Belgium and Luxemburg are calling for an increase of the €750 billion emergency fund already available and the first “euro area bond”. However, Germany and France have made their opposing stance pretty clear and uncertainty is likely to keep the euro under pressure for now.
Japanese yen
Japan’s October leading indicators index fell to -1.4 from the previous month’s already disappointing -0.6, thus increasing expectations that the Japanese economy will slow markedly over the next six months. Leading indicators aim to give a future outlook on economic activity and coincident indicator for the same period, which gives a more current snapshot, also turned more negative. However, the yen advanced further against the euro and also breached new three-week highs against the US dollar on global risks.
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