Sterling traded close to a two-month high against the euro yesterday as investors worried that the European Central Bank purchasing of Spanish and Italian bonds would have minimal impact on the debt crisis. With no UK data released and the focus on Europe and the USA, sterling’s value was driven by risk sentiment. In a day that saw the FTSE 100 drop by 3.39% and £46bn wiped off the value of the UK’s top 100 companies, sterling made gains against both the euro and US dollar as investors bought into what is now seen as a safe haven asset. The pound fell just short of $1.65/£1 against the US dollar, but slipped back on rumours that the Bank of England will resort to further quantitative easing to boost the UK’s anaemic growth. Call in now for a live exchange rate.

In the euro zone, the ECB made good on the weekend’s promise by making moves early in the day to buy Italian and Spanish bonds to keep yields on those bonds at manageable levels. However, this did little to curb panic in the markets over the sovereign debt crisis. Stock markets plummeted across the region. Greece suspended short selling on its stock market after falling by 6% and the panic spread to France. Normally seen as a stalwart of the European region, rumours circulated yesterday that the country would be next in line for a credit rating downgrade after the USA’s rating cut late on Friday. The euro shrugged off initial gains from the ECB’s purchases, hitting a record low against the Swiss franc and dropping by 1.6% against the Japanese yen.

In the USA, following a downgrade of the USA’s credit rating on Friday, global stock markets went into freefall yesterday. The US dollar slid against the Japanese yen and Swiss franc as investors looked to safer haven currencies. In addition, manufacturing and consumer spending figures showed a contraction and added to concerns that the US recovery is slowing. Panic over the credit rating downgrade left many investors dumping stocks. One rating agency came out and affirmed it’s AAA rating but this did little to help. Call in now for a live exchange rate.

Elsewhere, the safe haven Swiss franc and Japanese yen soared against the US dollar and euro after the US debt rating downgrade and on fears the euro zone debt crisis could spread, despite efforts to contain it. Investors gave commodity currencies a very wide berth, with the South African rand plummeting by 3% against the US dollar and sterling as traders reversed riskier investments. The Australian dollar also slipped but recovered in later trading. Call in now for a live exchange rate.

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