Daily currency report

Geopolitical tensions eased at the end of last week, which brought risk appetite back into currency markets, which helped the so called commodity currencies, but weakened some of the safe haven currencies such as the yen and Swiss franc. The dollar found some support on the back of upbeat consumer confidence data out of the US, and as renewed fears over the European debt crisis heightened, investors reversed their euro/dollar positions to purchase the US dollar in droves. Sterling managed to hold onto its gains after strong reading of PPI.

Sterling

Sterling remains supported on the back of strong PPI data and in front of this week’s long line up of economic data. The pipeline price data come just in front of this week’s Bank of England quarterly inflation report, CPI, claimant count and retail sales data. Economist forecast UK CPI coming in twice the central bank’s target of two per cent. Employment figures will be watched carefully for a rise in wage growth. Investors will view a rise in earning as more dangerous than a rise in headline inflation, and could prompt the Bank of England to raise interest rates sooner rather than later.

US dollar

Geopolitical tensions, which had supported the dollar and other safe haven currencies, diminished after President Hosni Mubarak stepped down in Egypt over the weekend. Nevertheless, the dollar found support from improved consumer sentiment data and renewed fears over the European debt crisis, which sent the euro lower, all aiding the US dollar’s ascent.

Euro

Fears over the European debt crisis resurfaced when Bundesbank’s Axel Weber announced that he was not looking to fill Jean-Claude Trichet’s shoes come this fall and after spreads between German and Portuguese government debt began widening. Industrial production figures will be released in the eurozone and anything above forecast could be mildly supportive for the euro, but any gains are likely to be short-lived.

Japanese yen

The Japanese yen strengthened slightly against most majors after the release of Q4 GDP data. The growth figures were released above market expectations. It was the first contraction of quarterly growth data in five quarters and showed that China overtook Japan as the world’s second largest economy.

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