Pound Sterling reacted to US and European sovereign debt worries

Good morning. Equity markets reacted to debt worries on Monday, with the major indices experiencing heavy selling pressure. Ratings Agency Standard and Poor announced that they had placed the US on a negative watch in light of recent economic developments and a growing budget deficit. The US still holds a AAA sovereign rating. Energy commodities tracked the equity markets, with Oil futures contracting 2% to close at $107.43. Safe haven Gold bucked the trend and supported precious metal prices.  In Europe, economists speculated over the impending emergency bailout extension, which would assist in lowering debt refinancing costs in Greece and Ireland. Critics to the fund, have highlighted the possibility for a significant increase in fiscal costs and a lack of qualified austerity measures. Finland has been a vocal critic to the measures. In Asia, Chinese officials announced the tightening of bank reserve requirements. This had a positive effect on the local markets, with traders previously factoring in the possibility of a raising of interest rates. The measure is expected to slow growth and force inflation lower.

On the equity market front, the S&P500 closed the session 1.1% lower. Technology company Texas Instruments reported a solid profit for the quarter, with the company forecasting stronger growth patterns over the next 12 months. Google announced that it had invested in an alternative project based in Oregon. The $100 million purchase, adds to the current portfolio of green energy assets.

On the currency front, The Euro reacted to debt concerns, with the currency falling to 1.4223. With ratings agency S&P reducing the long term outlook for the US, the market was uncertain over the potential debt refinancing in Greece, Portugal and Ireland. Economists were also uncomfortable with the potential for a contagion effect. Speculation that the ECB could raise rates in the coming months had little supportive effect during the day session. Tracking other risk and European based currencies, Pound Sterling contracted during the session. Falling against the US dollar, the market was cautious on the high yield, high risk currencies. Continued debt concerns and the potential for refinancing in the region led to spike in volatility and volume during the lunchtime session. Key housing data released in the US this week, will also impact the movements in the base currency.  The Japanese Yen strengthened against the greenback on Monday with traders flooding towards safe haven currencies – the yen and franc. Trading at 82.37, the USDJPY was driven lower by repatriation of yen in light of recent disasters. Insurers continue to reinvest in the local currency to cover their financial obligations. The debt downgrade in the US also compounded movements during the session, with fears that the European debt crisis could be spreading to the rest of the World.