While traders flocked to the USD versus risk currencies, the greenback remained under pressure against the JPY, trading to an overnight low of 77.56 and continuing to remain on hand in Asia, falling to 77.05.

US traders had their first opportunity to position themselves after S&P’s controversial downgrade of the US long-term rating, and the result was to buy US treasuries in droves. With yields coming off across the curve, it seems the bond market is suggesting a recession is on the cards, even if most investment banks see this as an unlikely event. During Asian trade, focus was on the speculation that Japanese finance minister Mr Noda would quit his post and make a run for party presidency. However, he went on record saying that this was not the case, and added that yesterday’s G-7 statement helped reduce some concern. Around midday, USD/JPY spiked up 80 pips, although the fact it came back to where it had been suggests it was not intervention.

Arguably, all eyes will be on Ben Bernanke and the FOMC meeting with traders praying we will hear calming words. It is the Federal Reserve’s job to stabilise markets, so expectations are high. There are certainly some parts of the market hoping Mr Bernanke will hint at further asset purchases, but there are other things he may consider. The Fed could announce a timetable for holding the balance sheet unchanged, for example, suggesting they will re-invest proceeds for maturing deposits for an ‘extended period’. Either way, part of the reason why traders are so concerned is because they have little faith that officials can actually control the slowdown and panic in the markets.