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What a day. I won’t go through everything that happened yesterday as there is far too much to cover and the lads and ladies at the BBC or The Times will be able to summarise the stock moves better than I can. What I will give you is what is affecting us in the currency markets. The markets are, to the casual observer, broken again and pitched towards further losses. Risk in markets both developed and developing has reached levels that investors are now starting to take money off the table and wait for normal market conditions to come back in September.

It’s difficult to pin the global market sell-off on one particular factor. The morning was full of intrigue surrounding the Japanese and Swiss central banks’ efforts to weaken their currencies. As we said yesterday, these short-term liquidity measures may work over the next couple of days however for the Swiss franc and the Japanese yen to start to weaken we need to see a reemergence of some form of global recovery. Unfortunately, as summarised by Jean-Claude Trichet yesterday at his ECB post decision press conference, downside risks to growth have intensified in Europe and around the world. There is really nothing out there that a bull can hang his hat on at the moment. Even gold fell yesterday as traders liquidated profitable positions in order to pay margin calls against other assets.

The ECB decided to leave rates yesterday and it is our belief that there will be some regrets being felt towards the recent two interest hikes given the state of the periphery at the moment. Needless to say, I doubt Trichet expected to be giving a speech this downcast so soon after they decided to raise interest rates. In order to try and combat the increase in the yields, and therefore the risk, on Italian and Spanish bonds we expected to see Trichet announce a plan to buy up those bonds in the secondary market. We got something of the sort but instead of Spain and Italy it seemed the ECB were sniffing around Irish and Portuguese bonds; not the issue that needs addressing at all. This combined with a 6 month extension of liquidity operations that allow banks to come to the ECB and borrow money at very low rates for as much as they want hit the euro hard with GBPEUR back through the 1.15 level while EURUSD trades closer to 1.40.

The Bank of England was a complete non-event however with interest rates remaining at 0.5% and the QE program at £200bn.

There is a lot of volatility still washing around these markets with stocks in Asia falling around 5% overnight. The key release today will be the US Non-Farm Payrolls number due at 13.30. The expectation is for job growth of around 85,000 in the month of July. Now, given the balance of the markets at the moment a figure only slightly better than the expected could see a dramatic relief rally with risk back on to the table. Of course, the reason why people are moderating their expectations for the release is because the economic data coming from the United States has been so poor of late.  The likelihood is that it disappoints and markets remain downbeat. This will likely lead to a further “risk off” mentality i.e. equities lower, the euro weaker and the dollar gaining. The pound will most likely win against the euro and lose against the dollar.

We also get Italian GDP at 10am which will likely set the scene for the rest of the periphery.

You very rarely get advice from me on hedging in these updates; I like to keep it to the facts but today I will make an exception. The markets are likely to remain in a state of paranoid schizophrenia for the next couple of weeks and certainly for those of you who are euro buyers, the opportunity to hedge away some exposure as we reach into the 1.16s could be a real game-changer.

Latest exchange rates at time of writing