Daily currency report

Dominique Strauss-Kahn has resigned as managing director of the International Monetary Fund. The news will make headlines, but is not likely to have a lasting impact on currency markets. If anything, there could be a small relief rally seen in the euro, which in any case has seen gains against a weakened US dollar. The dollar has lost all of its gains made on the back of FOMC minutes that showed discussions taking place over the Federal Reserve exit strategy for normalising interest rates. For some, the discussions of an exit strategy suggested that rates would move higher sooner than later, which was dollar supportive.

Sterling

If markets are paying attention, sterling should look to take back some of the losses. The Bank of England minutes revealed a 6-3 vote in favour of leaving rates on hold. Three members voted for a rate increase, six voted for rates to be left on hold, with one of the six members voting to increase quantitative easing measurers. The split in votes was the same that has been seen over the course of the last several MPC meetings, so there is consistency in the committee’s division. The fall in the rate of unemployment to 7.7 per cent, its lowest levels since the third quarter of last year, provided some encouragement against a weakened consumer, although there was a small pick up in the claimant count that was not expected.

US dollar

The US dollar received a small bounce after the FOMC released their minutes that revealed discussions were held over how to exit its ultra loose quantitative easing policy. For some market participants, the discussions suggested that the Fed was on a faster path towards rate normalisation, but in looking at the details of the discussion, the variety of opinions on how to make an exit suggests that there is still a good deal of work that is still to be done, before a common plan is conceived.

Euro

The euro faces little in the way of economic data. Focus will continue to be placed on developments in the European debt crisis. However, if the euro reaction to a variety of comments made out of Brussels is any indication of investor laissez-faire over the issue, then there is little hope to see the euro break free from recently traded ranges with the limited event risk on the agenda.

Japanese yen

The full impact of the March earthquake on Japan’s economy was seen in the release of Q1 GDP. The release was much weaker than market forecast with growth contracting 0.9 per cent on the quarter and -3.7 per cent annualised.

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