Sterling recovered from initial losses in the aftermath of the Bank of England's eagerly anticipated inflation report. The euro took full advantage of sterling's weakness in spite of poor industrial production figures. The dollar was also quick to benefit from the Bank of England's report as it rose from four week lows against sterling.

Sterling

Despite negative unemployment figures revealing a national jobless rate of 7.1 per cent, markets focused on the more positive data released previously. This included a narrowing trade deficit, a record increase in retail sales for April and manufacturing figures which had outstripped market expectations considerably. However, the Bank of England report predicted a contraction of the British economy by 4.5 per cent in the second quarter of 2009.

US Dollar

Poor US data rekindled demand for safe haven currencies. Retail sales fell 0.4 per cent in April. This combined with weak housing data stifled recent optimism and raised fresh concerns about the state of the US economy. As a result, the greenback made significant gains against a basket of currencies. In particular, it reached seven-week highs against the euro and came off four week lows against sterling.

Euro

The eurozone industrial production fell by more than had been expected. Figures surprised to the downside showing drops of 0.2 per cent month on month and 20.2 per cent over the year. In spite of the negative data, the single currency was buoyed by news that Germany is to set up a "bad bank" to hold toxic assets held by the country's leading banks.

Japanese Yen

The yen took full advantage of its safe haven status rising against all the majors. However, Japan's Nikkei index lost out closing down 2.6 per cent. The stock market losses were mainly attributed to fresh concerns about the state of the global economy.