Sterling falls as debt concerns weigh on the currency and investor short

The falls in the pound were exacerbated by concerns that an outbreak of swine flu would dampen a global economic recovery

Sterling fell against the dollar on Monday, weighed down by ongoing concerns about the economy and the country's ballooning debt. The falls in the pound were exacerbated by concerns that an outbreak of swine flu would dampen a global economic recovery, raising risk aversion and prompting investors to seek the perceived safety of the U.S. dollar and yen. The pound had been hard hit after the UK budget announced last week showed country would run a budget deficit of 12.4 percent of gross domestic product and have to issue a record 220 billion pounds of gilts for the fiscal year. The GBP/USD is currently trading at $1.4540 as of 8:40am, London Time.

The yen advanced against the euro after the World Health Organization said the swine flu outbreak is no longer containable, triggering demand for safer assets. Japan’s currency also gained versus the dollar after the Wall Street Journal reported that Bank of America Corp. and Citigroup Inc. are being told by regulators they need more capital, signaling the global financial crisis may be far from over. “The spread of swine flu has sparked concern over global risk and strengthened risk aversion,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co. “Thus demand for the yen as a refuge will increase.” Treasury Secretary Timothy Geithner indicated on April 21 that stress tests would show most of the 19 biggest U.S. banks have enough capital. The USD/JPY is currently trading at 95.85 as of 9:00am, London Time.

The Australian and New Zealand dollars fell for a second day on concern the spread of swine flu from Mexico will hurt tourism and deepen the global recession, spurring investors to sell riskier assets. Australia’s currency dropped below 70 U.S. cents for the first time in a week after a Wall Street Journal report said U.S. regulators told Bank of America Corp. and Citigroup Inc. that they need more capital. New Zealand’s dollar slid the most in a week versus the greenback and yen. Demand for the currencies weakened after the World Health Organization raised its pandemic alert to an unprecedented level as the U.S. confirmed 40 cases of the flu and Mexico’s toll of flu-related deaths reached 152. The AUD/USD is currently trading at 0.7020 as of 9:10am, London Time.