Global markets displayed a highly risk-averse tone on Monday as sharp losses for equities drove traders to the havens of the dollar and yen.

Investors began to question recent results from banking groups after Bank of America reported better-than-expected earnings for the first quarter, but included a large increase in troubled loans.

Meanwhile,Barack Obama, US president, said on Sunday that it was still a difficult time for the economy and that credit was still severely restrained. Angel Gurria, secretary general of the Organisation for Economic Co-operation and Development, agreed, saying governments still had much work to do to pull the global economy out of recession, in spite of the vast sums already committed in stimulus packages.

The reaction on equity markets reflected an upturn in aversion to risk. Financial stocks were sold off heavily as many indices in Europe and the US recorded losses of more than 3 per cent.

For the dollar and the yen, this spelled gains as investors fled for perceived safety.

“The bullish reaction of the dollar to a more cautious tone from President Obama and his advisers over the weekend suggest the currency remains positively correlated with risk aversion,” said Daragh Maher at Calyon.

Sterling fell 1.7 per cent to $1.4544, while higher-yielding currencies like the dollars of Australia and New Zealand suffered more severe losses as the carry trades that propelled them higher in previous weeks unwound.

The Aussie fell 3.5 per cent to $0.6969 against the dollar and by 3.4 per cent to Y68.21 against the yen, while the Kiwi lost 3.1 per cent to $0.5504 and 4.3 per cent to Y53.90.

The euro fell 0.9 per cent against the dollar to $1.2924 and by 2.2 per cent against the yen to Y126.54.

Sterling, one of the best performing currencies last week, was on Monday one of the most severely punished as Wednesday’s UK Budget approached.

In spite of data showing improving price conditions in the UK housing market, the pound fell 0.7 per cent against the euro to £0.8885 and was off 3 per cent to Y142.39 against the yen.

“Its failure to react positively to the housing data warns that sterling is heading towards a pronounced downward correction,” said Hans Redeker at BNP Paribas. “We have been promoting sterling long positions for weeks but urge clients to take a cautious approach within this budget week.”

The fall in risk appetite left many emerging market currencies nursing losses. Poland’s zloty fell 3.6 per cent against the dollar to 3.4058zlotys and by 2.5 per cent against the euro to 4.3950zlotys.

In Hungary, the forint lost 2.8 per cent versus the dollar to Ft232.13 and was 1.1 per cent lower at Ft299.70 against the euro.

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