Daily currency report

The euro ended an impressive week by notching multi-week highs against a host of rivals including the US dollar and yen. The most recent stock market rally duly advanced and investors piled back into risky assets on hopes eurozone leaders could put an end to the long running fiscal crisis by as early as next week. Robust US retail sales data also helped improve risk appetite and consequently demand for the refuge dollar declined at a record pace.

Friday’s action may extend into this week after G20 officials, who had gathered in Paris over the weekend, appeared content with Europe’s latest crisis fighting plan. However, leaders warned that they expect a resolution by October 23 which gives eurozone politicians just over one week to deliver on their promises. Consequently, nerves may begin to kick in. Economic data from the UK, US, China and Europe will provide distractions over the coming days however general focus still remains on the common currency area. Markets may be drip fed details of the proposed measures and banks will be very anxious to know if they will be expected to absorb substantial losses on peripheral government debt as part of the solution. Any type of backlash from private investors could easily see confidence in riskier assets plummet.

Sterling

Sterling clocked one-month highs against the US dollar after data showing US retail sales picking up by a faster than expected pace helped brighten the mood in financial markets. However, as optimism spreads, the pound has lost further ground against euro and other rivals offering a better return.

US dollar

Robust US retail sales figures led the US dollar to its biggest weekly decline against a basket of rivals since 2009. The dollar fell by almost four per cent versus the euro last week and though markets are yet to see any concrete plans, hopes of a solution may hurt the dollar further over the coming days.

Euro

The euro produced an impressive turnaround last week underpinned by hopes of eurozone leaders finally launching a comprehensive plan to end the sovereign debt crisis. The common currency’s trade weighted index surged to a five-week peak, helped most notably by a rapid advance to almost one-month highs against the US dollar. A more optimistic atmosphere in financial markets also saw stock markets rally as investors hurried back into more risky assets, a trend which may extend into this week.

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