Daily currency report

Overview

The single currency was already looking shaky after some members of the eurozone voiced their displeasure at some of the fire-fighting measures agreed to, during last week’s two-day EU gathering while eurozone unemployment was seen rising to another record high in May. As Europe’s macroeconomic picture turns even gloomier, the European Central Bank could slash interest rates by as much as half a per cent. With British output is still very much in decline, the bank of England is widely expected to open its quantitative easing cheque-book one more time.

Sterling

The pound opens within striking distance of one-month highs against the US dollar following UK economic data which beat analysts’ expectations. British manufacturing activity shrank for the second month in a row in June but the pace of decline was far less than what markets had priced-in. That gave sterling a noticeable lift during a session while dire economic data released later in the afternoon compounded the dollar’s move lower. The pound also finished the day up 0.7 per cent against the euro after both Finland and the Netherlands expressed their concerns about last week’s summit conclusion which was to allow the eurozone’s bailout funds to buy distressed government bonds.

Euro

Optimism from an EU meeting that is helping to ease the region’s fiscal strains gave way to worries about the eurozone’s economic landscape, forcing the euro to hand back some gains against the pound, US dollar and yen. Fundamentals continue to paint a very damaging outlook for the euro area after official data con­firmed that unemployment across the 17 nations rose a notch to reach 11.1 per cent in May, representing another new record high.

US dollar

Investors were already feeling uneasy having seen the Chinese manufacturing sector grow at its slowest pace in seven months and the US dollar could subsequently advance further. On the other hand, investors will also be feeling nervous about their dollar reserves heading into unemployment data which will go a long way towards answering questions about the Fed. Reserve’s quantitative easing plans.

Japanese yen

The yen rose sharply after another intervention warning from the Swiss National Bank deflected more safe haven flows towards the East Asian currency.

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