Daily currency report

The euro staged a strong recovery against the US dollar while the latter suffered further after a record improvement in US employment encouraged more risk buying.

Sterling

Sterling reversed the trend after positive European bond market activity helped quell investor’s fear that another weaker eurozone member will soon follow in the footsteps of Ireland. As a result, sterling tumbled by over 1.2 per cent against the euro but did manage to record noteworthy gains against the US dollar and yen after earlier coming under heavy pressure from safe haven buying.

US dollar

The US dollar fell sharply following a marked improvement in global sentiment which encouraged risk appetite. Falling spread yields in the eurozone eased contagion fears which allowed the euro to rebound strongly from almost three-month lows against the greenback. The US dollar also found itself broadly under pressure after encouraging manufacturing data from across Europe, and a record improvement in US employment, helped to ignite a rival in risk buying thus reducing the greenback’s safe haven appeal.

Euro

The euro rebounded by almost 1.5 per cent against the US dollar and two per cent against the yen following some encouraging developments which helped to ease pressure on the single currency. European Central Bank president Trichet suggested that it may expand its bond purchasing programme in order to increase demand for peripheral bonds, which would then help drive down sky high borrowing costs.

Japanese yen

The Japanese yen’s recent surge on safe haven buying recoiled abruptly as equity markets rose, eurozone tensions eased and US employment rose by a record amount. As a result, investor’s appetite for risk returned which damped the allure of the safer yen. Highlighting this shift was the yen’s 2.4 per cent fall against the higher yielding Australian dollar which tends to benefit when investor’s mood improves.

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