Markets Tumble in Response to Twist

Yesterday’s move by the Federal Reserve has failed to reassure investors. The move, dubbed Operation Twist involved a plan to buy longer term Treasuries. However, whilst they have succeeded in bringing down interest rates, the unorthodox plan has failed to convince top investors that the policy will strengthen economic growth. However, it wasn’t the currency markets that were attracting the spotlight yesterday. Stocks and shares worldwide plummeted as investors sought safer assets.

Pound Sterling – UK Markets

Sterling has managed to claw back some of the lost ground against the dollar after the Group of 20 nations stated a “strong and coordinated” approach would be implemented to battle the challenges currently facing the global economy. This move has reduced demand for safer assets. Our currency strengthened against most of its 16 major counterparts but has continued on its fifth consecutive weekly decline versus the dollar. With little news due out today it should be a relatively calm afternoon before traders depart for the weekend.

US Dollar – US Markets

The Fed’s decision yesterday to alter their standing on short term bonds has not been taken well in the markets. Consequently the dollar has just slipped back following recent gains made throughout the week. There is little else to say when it comes to the dollar today – all that is likely to occur is that traders worldwide will be attempting to claw back losses made yesterday in what was a calamitous chain of events.

Euro – European Markets

The euro rallied from a decade low against the Japanese Yen, pairing its biggest weekly drop since May. Similar to sterling, the euro has been boosted by the G20 meeting where they stated they would respond accordingly to challenges facing the global economy. Again, there is little data due out today in the Eurozone. However, due to positions that may have been taken throughout the week on the back of the on-going debt crisis there may be some volatility this afternoon as investors look to square off and take a break over the weekend.

Other Currencies – Highlights

The South African Rand has suffered its worst five day plunge since 2008 as the weakening global economy hurt demand for riskier assets and the central bank signalled that it may cut interest rates in an attempt to boost the economy. The Rand fell as much as 5.4 percent against the dollar to its weakest level since July 2009.