LONDON (Dow Jones)--Rising concern over the global economy is pushing risk aversion back up again and leaving the dollar up against most other majors in Europe Wednesday.
In what Commerzbank described as the "hangover after the G20 party," the focus of financial markets is back on the uncertainties over the global economy and the continued risks to the banking system despite all the recent efforts to increase liquidity and ease credit conditions.
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The International Monetary Fund helped to kick this off with its warning that total global toxic debts are likely to prove much more than originally anticipated.
Meanwhile, the second round of the U.S. Federal Reserve's $1 trillion facility was poorly received late Tuesday, making it likely that the U.S. central bank might have to explore other ways of injecting liquidity.
On the economic front, a 50.4% collapse in Japanese exports over the last year gives some indication of the decline in global demand.
Ireland's plans to introduce tax hikes on the middle classes to help raise funds for bailing out its banks have increased the risk of a further slowdown in growth.
Analysts reckon that this will increase pressure on the European Central Bank to ease monetary policy further and contribute to further euro weakness.
Geoffrey Yu, a senior currency strategist at UBS in London, summed up the general malaise, saying "investors are entering the earnings season with confidence on the wane and expectations are being scaled down."
As investors shied away from risk, the Dow Jones Industrial Average was left 2.7% lower and the Nikkei was down 2.3%. In Europe, most bourses were down between 0.5% and 1.5%.
The gloomy mood is likely to be reinforced by data from Germany later in the day showing that factory orders declined by 2.7% in February.
By 0930 GMT, the dollar had fallen to Y99.67 from Y100.43 late Tuesday in New York, according to EBS.
The euro was down at Y131.44 from Y133.40 and at $1.3187 from $1.3271.
The dollar was up at CHF1.1488 from CHF1.1456 while the pound fell to $1.4653 from $1.4736.
In Eastern Europe, most currencies remained under pressure as investors steered clear of risk.
The euro rose to HUF298.25 from HUF295.51 and to PLN4.4979 from PLN4.4673. The single currency is also up at CZK26.643 from CZK26.636.
-By Nicholas Hastings,
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