Global share markets have fallen back amid investors’ widening fears of a sustained worldwide economic recession.
It is startling how quickly and savagely the global credit crunch is morphing into a full-blown economic crisis.
The latest gloomy news on the economy took the euro below $1,26. Six months ago, a euro would buy as much as $1,60. Such has been the severity of the recent shifts in currency markets that the euro is one of the better performing global currencies. It is down by 14% against the dollar this year; the pound by 22%. A good chunk of that fall took place in the past week.
A handful of rich-country currencies have fared worse. The Norwegian krone and Canadian, New Zealand and Australian dollars have fallen by still more, partly a reflection of the worsening prospects for economies that are sensitive to falling oil and commodity prices (Source).
Not every currency can go down. As investors pull funds from one country they need to find a new home for their money. The favoured destination for now-skittish capital is Japan. The yen which has risen, according to intra-day trading, by a fifth against the dollar since the start of the year, is proving attractive because of Japan’s status as the world’s biggest creditor nation.
When credit is drying up, investors steer clear of countries with current-account deficits, since their economies rely on overseas borrowing to sustain them. But Japan habitually runs trade surpluses and, as a consequence, has built up a big stock of foreign assets (Source).
Continuously updated coverage on the global financial turmoil can be found here: Reuters|From Wall St to Your Street, BBC|Global Financial Crisis, and BBC|The downturn .
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