Declining borrowing costs for some of Europe’s debt-strapped nations and talk of more European Central Bank intervention helped keep traders favouring more risky stocks and currencies. As a result, the euro continued to attract interest while the British pound powered to fresh 10-week highs against the US dollar’s advance was also bolstered by upbeat manufacturing data with the US dollar still under pressure from an extremely dovish monetary policy outlook. Interest rate differentials continue to favour the Australian and dollars with both currency units reaching multi-month peaks versus the currency, supported further by Australian trade data. Traders have also revived their interest in emerging market currencies with the Polish zloty closing in on October and August highs against the US dollar and euro respectively.
Sterling
Growth in Britain’s manufacturing sector exceeded expectations in January, helping the pound to preserve its somewhat bullish tone against the US dollar to reach fresh 10-week highs. Sterling has now advanced by over four per cent against the greenback since mid-January thanks in large to European bond market stability, improved global economic data and an extremely dovish monetary policy which have all helped lift risk appetite.
US dollar
The US dollar was hit by another batch of weaker-than-expected economic data, strengthening calls the US Federal Reserve may not only keep interest rates low for an extended period of time but may still expand its quantitative easing programme in 2012. On the balance, US fundamentals over the past few months have painted a more hopeful looking picture on the economy although recent data seems to be slipping.
Euro
The euro kept its composure to close the day in range of December highs against the US dollar and remain well supported in other major crosses. A number of factors contributed not only to support the single currency but to also keep sentiment among investors favouring more risky stocks and high-yielding currencies. Hopes of a deal in Greece are helping to sooth European bond markets and as a result, yields on Portuguese and Italian government bonds fell amid rumours of more European Central Bank intervention.
Japanese yen
A quiet Japanese economic calendar meant yen-traders focused less on actual statistics and more on speculation over whether or not local authorities will intervene in currency markets in order to safeguard Japan’s export markets. The yen reached another record high versus the US dollar, however, rather than re-launch intervention policies just yet, the government appears to leaning on the Bank of Japan to ease monetary policy even more.