Daily currency report

Overview

Sterling slumped against most of its major currency trading partners, after data released showed a sharp rise in the UK’s public sector cash requirement. The euro also came under pressure against the dollar as the single currency fell from over two-month highs as tumbling equity prices hit appetite for risk, prompting investors to book profits ahead of the results from stress tests on European banks. Meanwhile, data from the United States showed housing starts hitting their lowest level in eight months in June, further evidence the US recovery from recession may have lost momentum. However, a rise in permits offered hope that homebuilding was poised to pick up.

Sterling

The morning trading session witnessed the pound dip to a one-week low against the dollar and to a seven-week low against the euro, undermined by the data which showed deterioration in UK public finances in June. Nevertheless, sterling did claw back most of its losses by the close of the European trading session as analysts stressed the negative spending figures looked short-term and that the impact of budget cutbacks were still in the pipeline.

US dollar

The dollar benefited in early trading on the back of poor UK data, but surrendered most of its gains after the release of negative housing data. Nevertheless the dollar made modest gains against the Canadian currency, after the Bank of Canada raised its interest rates for the second time in two months to 0.75 per cent, but cautioned that the domestic and global recoveries will be slower than previously expected.

Euro

The euro fell broadly, reversing a climb to its highest level against the dollar in than two months. European shares fell alongside the single currency as investors reckoned recent gains have been overdone before the outcome of the EU’s bank stress test.

Japanese yen

The yen dropped against all of its major counterparts as equities erased losses and growth prospects in Asia offset a drop in US housing starts, easing concerns that the global economic recovery is slowing.

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