It wasn’t just mayhem on the streets of London last night, there was blood on Wall Street too, as US and indeed global equity markets took further falls following the weekends US debt downgrade. Equities closed massively in the red across the globe, with US markets taking their biggest daily falls since December 2008, while European indices feared no better as the French, German and UK indices all closed down around 4-5% lower.

As a result we saw classic ‘risk off’ trading as investor sought safe havens, pushing the CHF, JPY and to a lesser extent the USD stronger. The initial knee jerk reaction of a weaker dollar as a result of the downgrade looks short lived, as ironically treasury yields in US debt actually fell as investors fled back to their safety (despite what the S&P say)

The euro found short term support in early morning trading after the ECB engaged in its promised bond buying program, but finished the day lower against most crosses as sentiment further soured. The ECB’s buying of Italian and Spanish debt meant that while the yields on those bonds fell as intended we did see investors start to turn their focus towards France. Credit default swap levels (essentially the cost of insuring their sovereign debt)  ,. worryingly rose over the day to 15 year highs vs German CDS levels, leaving investors wondering whether France will maintain its prized AAA rated status.

After large falls on Greece’s stock market pushing it back to 1997 levels, the Greek government have imposed a ban on short selling stock, a measure obviously used globally during the financial crisis but sparingly since.

With the FOMC meeting later today, it will be interesting to see if the FOMC will take the opportunity to provide any sort of immediate response. We are unlikely to see the Fed do anything just yet, but the markets will be more hoping to hear there is further appetite for further easing

Latest exchange rates at time of writing