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Asian currencies plunge to 10-month low, prompting action by central banks

Sterling hit a one-year low against the dollar and a record low versus the yen yesterday as the Federal Reserve warned of significant weakness in the US economy, prompting investors to slash exposure to riskier currencies and assets. The pound tumbled to $1.5326 , its lowest since September 2010, with the next target being the low hit that month of $1.5296. It also hit a record low against the yen around 116.96 as market players sought safety in the US and Japanese currencies. The outlook for sterling remained bleak after Wednesday’s Bank of England minutes flagged policymakers’ increased readiness to ease monetary policy further. Meanwhile, the Federal Reserve warned of ‘significant downside risks’ to the US economy but stopped short of expanding its own balance sheet. This sparked sharp falls in risk-related currencies, including the pound, as fears about the risks facing the global economy increased.
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The euro rallied from a decade low against the yen, paring its biggest weekly drop since May, as the Group of 20 nations pledged a ‘strong and coordinated’ response to challenges facing the global economy. The 17 nation currency trimmed earlier gains against the US dollar after Moody’s Investor Service lowered the credit ratings of eight Greek banks by two levels. The shared currency trades around the $1.3500 handle, from $1.3465 yesterday, when it reached $1.3385, its lowest since January 19. The euro snapped five days of losses versus the dollar in early Asian trading but is still down 2.2 percent against the greenback this week. Traders sold the common currency this week on concern Europe wont contain its debt crisis, even after Greece accelerated budget cuts to qualify for next month’s payment under a 110 billion-euro international bailout. Not much movement for GBP/EUR yesterday, still trading around the 1.1400 handle.
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As long as there isn't a market-wide revival in investor optimism (highly unlikely), the dollar seems set to close out an impressive performance for the week. The greenback does moderately well when sentiment is under pressure, but the currency truly shines when panicked money managers and individual traders don't have time to consider exploding risk against tepid returns. While not yet at conditions comparable to the 2008 financial crisis, we can certainly make allusions to that catastrophe. Since the FOMC announced it was no longer pursu¬ing an expansive monetary policy regime, market participants have come to the realisation that the worlds largest source of support in the past decade has left them to fend for themselves.
No Major Data Due Today.


• Asian currencies headed for their biggest weekly drop since 1998 on slowing global economic growth, prompting some central banks in the region to intervene to stem declines.


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GBP/USD                        1.5425

GBP/EUR                        1.1410

EUR/USD                        1.3520

GBP/JPY                         117.60

GBP/AUD                        1.5720

GBP/NZD                         1.9700

GBP/ZAR                         12.808

GBP/CHF                         1.3950

GBP/CAD                        1.5830

GBP/SGD                        1.9970

GBP/THB                         47.464

GBP/HKD                        12.025

red-down; blue-up (snap shot)

These rates are for indication purposes only.


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