Daily currency report

The US dollar raced higher against most crosses after two pieces of economic data showed an on track economic recovery. Eurozone sentiment figures as well as retail sales data will be released alongside German industrial orders. Markets were not overly impressed by the higher yield that the Portuguese government had to pay for its six-month paper, suggesting that investors are still very cautious to invest in government bonds with the European debt crisis still ongoing. This debt crisis continues to weigh on the euro’s ability to make gains, leaving the euro vulnerable to selling pressure. Sterling could face another surprise with the release of its PMI service sector survey. The upbeat release of the manufacturing survey has heightened expectations for the release, and a disappointment could weigh heavily on sterling.

Sterling

Sterling saw strong support, despite a PMI construction release that pointed towards contraction in this sector of the economy. Investors instead continued to focus on the manufacturing index that surprised markets to the upside earlier in the week.

US dollar

The US dollar rose sharply against nearly all crosses, after ADP employment figures nearly tripled expectations. The 297k rise in private sector jobs stunned markets, and when coupled with ISM non-manufacturing headline figures which were at levels not seen since 2006, reassured investors that an economic recovery was underway in the US.

Euro

A bond auction in Portugal shocked markets, with the government having to offer more than expected to investors willing to buy its six-month paper. The yield demanded by investors stood at 3.686 per cent versus 2.045 per cent seen in the prior auction of similar debt. The rise in yields suggests that investors are still very cautious about the European debt crisis. Despite upbeat economic data that has been released this week, these figures have only managed to help limit the euro’s losses with so much negative sentiment in the eurozone.

Japanese yen

The Japanese yen continues to see some soft selling pressure. The yen’s decline can partially be blamed on the dollar’s rise, with the dollar becoming the safe haven of choice.

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