The yen and the Swiss franc remain the currencies of choice as market sentiment continues to be dominated by fears about the outlook for the global economy and fiscal problems in many developed economies. Although initially providing some support for the euro, the ECB buying of Italian and Spanish bonds has also undermined sentiment as it further intensifies fears that the European debt problems are deep-rooted. Added to this are fears that France could face a downgrade of its triple-A rating which caused its credit-default swaps to widen sharply. The G7 statement that it will take measures to support the world economy as risk aversion remains the key market driver.

Against this wave of negative sentiment, the Swiss franc hit yet another lifetime high against the euro in early morning trade, with confidence shattered by further falls in global stocks. It also remains under pressure versus the yen. Meanwhile, versus the dollar, the euro is very choppy in familiar ranges as sentiment ebbs and flows. The USD is finding some support on the back of its traditional safe haven status but upside is limited given all the concerns about the US. All eyes are now on the FOMC meeting which will conclude later in the day to see whether the Fed will take steps to ease market concerns. It is expected to leave interest rates on hold but could announce fresh liquidity measures.

The euro also remains choppy against sterling, having recovered from yesterday’s lows but is still vulnerable. Versus the dollar, sterling has slipped back but remains above the $1.63 level. UK data released overnight, including the latest RICS housing and BRC retail sales surveys were better than expected, which could provide some support over the day.