Daily currency report

The US dollar rose to an 18-month high against the euro and coming close to a 12-month high against sterling. A combination of safe haven demand as well as upbeat economic data provided the catalyst for the greenback's rally and has prompted speculation that the US dollar could, once again, achieve parity with the single currency.

Sterling enjoyed better fortunes against the euro as David Cameron ended speculation and became Prime Minister at the head of a new coalition government formed with the Liberal Democrats. Elsewhere, the announcement of a €750 billion aid package from the eurozone's member states and the IMF did initially help stem the euro's losses against the other major currencies. Nevertheless, concerns remain that Greece as well as Spain, Portugal and Ireland could all potentially default on their huge debts and consequently the euro came under fresh selling pressure.

Sterling

After an initial bounce across markets as the new government was sworn in, the sterling weakened against the dollar as Britain's huge budget deficit once again took centre stage. The pound also suffered as economic data, although improving, continues to paint a picture of fragile economic recovery.

US dollar

The dollar benefitted from safe haven demand as the European debt crisis and political uncertainty in the UK continued to unsettle investors. The greenback also garnered support from stronger economic data with retail sales exceeding forecasts to rise by 0.4 per cent in April.

Euro

In a turbulent week the euro initially rose on news that the EU and IMF had come up with a €750 billion rescue fund. This was bolstered by the announcement the Fed had reopened dollar swap lines and that the European Central Bank had restarted its six-month lending facility and was also buying government bonds. However, any respite for the euro was short-lived as investors raised concerns about the credibility and independence of the European Central Bank.

Japanese yen

The Japanese yen continued to benefit from safe haven demand. In much the same vein as its US dollar counterpart, political uncertainty in the United Kingdom and economic uncertainty in the eurozone saw investors opt for safer assets.