A deadly combination of declining economic activity from across the globe and mounting concerns of a financial meltdown across Europe have led to stock market declines last witnessed following the collapse of Lehman Brothers in 2008. The trend looks set to continue after the International Monetary Fund called on eurozone leaders to take immediate action in response to its debt crisis after the organisation held talks with G20 leaders over the weekend. Markets are now expecting bold new action from European politicians with some analysts fearing that amounts of up to €3 trillion maybe required to avoid credit troubles within the area sparking worldwide panic. Consequently, the US dollar and Japanese yen continue to post record highs across the board while investors remain bearish towards the UK pound as the Bank of England move closer to more money printing.
Sterling
Given the pound’s close association with shifts in sentiment, last week’s collapse in stock markets across the globe on eurozone worries suggests there may still be more pain to come. Although on the plus side, Sterling has suffered little in comparison to more exposed currency units such as the Australian dollar and South African Rand. The Bank of England’s clear shift towards more money printing in order to prop up the UK economic recovery is also another key factor in keeping Sterling near record lows against both the Japanese yen and US dollar.
US dollar
Escalating fears of a US and Chinese-led global growth slowdown, along with Europe moving closer to financial meltdown, continue to support impulsive moves into the US dollar. Local events this week may encourage even more demand for safer investments with statistics on the US housing market, consumer confidence and manufacturing sector expected.
Euro
The euro found some respite thanks in large to another bold statement of intent from the group of G20 heads, who had gathered for talks in Washington. The message was clear, albeit what markets have become accustomed to, that world leaders are “committed to a strong and coordinated international response”. However, the International Monetary Fund has ramped up the pressure on the euro area, urging the European Central Bank to do more in order to contain the current crisis.
Japanese yen
Japanese stock markets continued their tumble, heading back towards levels last seen in March at the height of the country’s earthquake disasters. As risks from several continents accumulate at an alarming pace, investors are continuing to test Japan’s resolve in keeping its currency weak enough to support Japanese export markets.
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