Global recovery fears shake currency markets
Forex markets were a picture of uncertainty on Monday, with flows increasing into the safe-haven dollar and traders retreating from the riskier euro.
As traders continued to reel from dreadfully poor non-farm payrolls, announced Stateside on Friday, contagion fears were starting to build over the eurozone debt crisis.
Reports from China that inflation was up 6.4% year-on-year in June completed the trio of terror and left markets reassessing their positions.
Ilya Spivak, currency strategist at DailyFX, said: "The US dollar pushed aggressively higher overnight, bolstered by safe haven demand as stocks slumped after a disappointing US jobs report was compounded by deepening crisis in the eurozone and fears of accelerated slowdown in China. S&P 500 stock index futures - a proxy for broad-based sentiment trends - are trading sharply lower, pointing to more of the same in the coming session."
The euro was down 1% and at a two-week low on the dollar at 1.4130 at 10:30 BST, while the pound was 0.55% lower against the greenback at 1.5969 - taking out the 1.6000 support level.
The yen and Swiss franc - fellow safe-haven currencies - were also on the front foot against the euro and pound, while commodity-linked currencies suffered slightly due to their countries' export links with China.
Sterling is unlikely to experience any real support during the session, since there is no economic data scheduled for release in the UK.
Peter Theuninck, currency analyst at BaydonhillFX, said: "Only advances by the dollar against the euro is giving sterling knock-on support against the single currency. Traders are showing increasing concern over a protracted economic recovery in the UK and are remaining cautious ahead of Tuesday's CPI inflation releases and government treasury account data being released on Wednesday."
The single currency's renewed weakness has come from reports indicating the European Central Bank is seeking to set up a fund to include aid for Italy, according to Richard Driver, currency analyst at CaxtonFX.
He said: "In addition there have been some admissions by EU leaders that Greece should default on some of its bonds when a resolution finally arrives. If this sets a precedent for crises elsewhere in the eurozone down the line, then bondholders are right to be very concerned."
Stockmarkets were also hit by the risk aversion, with a sea of red awash over global equities.
Yusuf Heusen, senior sales trader at IG Index, said: "It's fair to say sentiment was shot to pieces by the much-worse-than-expected non-farm payrolls data on Friday, and with concern that the European debt crisis could spread to Italy there's no real incentive to treat this weakness as a time for bargain hunting.
"After the relief rally enjoyed over recent weeks, as the Greek situation progressed, the payrolls seems to have focused the market's mind back on the stuttering economic recovery. The risk is that we may well have already seen the best of the stockmarket strength for the moment."
