Fear grips the markets
Currencies Direct February 5th 2010 - 2 minute read
The volatility in the FX markets over the last 24 hours has been staggering! The main economic events yesterday were related to the UK and European central bank decisions- however this was not the driver for the volatility. The main ingredient was fear the exact location was GPS…Greece, Portugal and Spain. There was a scramble for safer shores in the USD and the YEN and out of the euro and higher yielders and to some extent the pound as panic swept the markets. Escalating debt concerns are increasing in these European economies and this drove stocks and commodities lower- debts spreads between the good eggs and bad eggs widened considerably and could increase further.
The market clearly needs some reassurance in regards to the bad economic apples of Europe and ECB president Trichet did little to reassure the markets yesterday so we await a viable plan from each economy. It seems the simmering problems perceived for some time within Europe are finally coming to the boil and the question is can each economy sort out their own mess? You could also throw Ireland into the equation to formulate the PIGS of Europe- if they cannot reduce their debt- will the ECB and IMF offer a trough for aid?
We are likely to stay in fear mode for this mornings trading and we await the big data today from the US in the form of non-farm payrolls. The markets really need a reassuring good number to stop the rot of fear- data due out at 13:30 GMT.
Reflecting on yesterdays interest rate meetings we saw no great surprises with the Bank of England keeping rates on hold at 0.5% and deciding to hold QE at GBP200 billion- this helped the pound hold firm (aside from against the USD and the JPY) as there was growing fear of a further expansion of QE. Over to the ECB and they as expected left rates unchanged – in the statement Trichet tried to defend the fiscal position of Europe as a whole with little impact. It is very clear that the Euro is being driven lower on fear with EUR/USD hitting a low of 1.3646- likely to be the trend for the foreseeable.
Written by
Currencies Direct