Anxiety in global markets spilled over to European currencies on Wednesday, with sterling facing particularly heavy losses against the greenback.
A sell-off in the pound and the euro steadily gathered through the London trading day, dragging sterling below $1.26 and leaving the euro lagging 0.8 per cent against the dollar.
While a move to the yen — indicative of a broader ‘flight to safety’ in global markets — had held back the dollar in earlier trading, the greenback’s strength built in the run-up to the start of Wall Street trading and the yen shift receded. After softening over recent days, the buck climbed 0.6 per cent against a basket of its peers, overcoming a gloomy outlook for US Federal Reserve rate rises in 2019.
The yen touched its highest level since the start of June in Wednesday trading, rising almost 0.8 per cent, while another ‘haven’ asset, gold, also climbed.
Weak Chinese global manufacturing data added to 2018’s fears of a slowdown in global growth. The growing queasiness sent yields on 10-year German and UK debt tumbling as investors flocked to the safety of Bunds and gilts.
“The dollar’s expensive and the economy’s slowing,” says Kit Juckes, currencies analyst at Société Générale.
“The euro’s not as cheap as it looks when euro-dollar is your only point of reference. Anyway, it’s got recessionary PMIs in Italy, recession in the German auto industry and THAT thing across the channel. The pound’s cheap but for excellent reasons; emerging markets FX is priced more attractively but need the growth outlook to stabilise before it’s worth putting a toe in the water. The yen’s cheap but QE continues.
“Welcome to the ugly currency contest.”
At 2.40pm in London, levels were as follows:
- Pound down 1.2 per cent at $1.2602
- Euro 0.8 per cent lower at $1.1367
- Dollar index up 0.6 per cent at 96.772
- Yen 0.4 per cent stronger at ¥109.23
- Gold 0.1 per cent higher at $1,284 a troy ounce