The release of the Bank of England Inflation Report for August suggested that policymakers were clearly more downbeat than in May. In terms of interest rates the policy makers are in “wait and see” mode. GDP growth in 2011 will be weaker than expected at just 1.4pct, while CPI inflation is expected to undershoot the 2pct target.

[Kick off your trading day with our newsletter]

The Swiss National Bank (SNB) announced new measures to try to reduce the value of the Swiss franc. The SNB said it would significantly boost franc supply and conduct foreign exchange swap transactions, but stopped short of direct intervention.

European shares ended lower on Wednesday, led by a sell-off in banking shares. Speculation that France´s AAA rating may be at risk rattled markets. French bank Societe General fell more than 21pct before closing 14.7pct. The European banking index lost 6.5pct. The FTSEurofirst index lost 3.8pct while the German Dax fell 5.1pct and the UK FTSE lost 3.1pct.

US sharemarkets slumped on Wednesday giving back the prior sessions gains on heavy volume. The concerns in Europe dominated market sentiment. Banking stocks led the declines. Bank of America and Goldman Sachs both lost over 10pct. The KBW banking index fell 4.9pct. The Dow Jones fell by almost 520pts or 4.6pct with the S&P 500 down 4.4pct and the Nasdaq lost 101pts or 4.1pct. The so-called ´´fear gauge´´ or Vix rose by 22pct to 42.9.

US treasury prices rose sharply on Wednesday (yields lower). Investors aggressively switched out of equities and into safe-haven US bonds on growing concerns of the levels of debt exposure at French banks. US 2yr yields fell by 2pts to 0.18pct and US 10yr yields fell by 15pts to 2.09pct.

The Euro declined against the against the greenback on Wednesday. Worries about euro zone banks, exposure to peripheral debt dominated sentiment. The Euro fell from highs near US$1.4400 to US$1.4160, ending the US trade near US$1.4185. The Aussie dollar fell from highs near US103.75c to US101.75c, ending US trade near US101.90c. And the Japanese yen held between 77.00 yen per US dollar and JPY76.30 ending US trade near JPY76.85.

Benchmark crude oil prices rallied on Wednesday following the release of the weekly inventory report. US crude stockpiles fell by a surprising 5.23 million barrels compared with forecasts for a 1.5 million barrel build. Nymex crude oil rose by US$3.59 or 4.5pct to US$82.89 a barrel and London Brent crude rose by US$4.11 to US$106.68 a barrel.

Base metal prices were mixed on the London Metal Exchange on Wednesday. Copper closed 1.6pct lower while Lead was the best performer up 1pct. And the gold price soared once again to fresh record highs. Comex December gold rose by US$41.30 an ounce to US$1,784.30.

Ahead: In Australia, employment figures are released. In the US, trade data is expected.