Daily currency report

Sterling rallied to fresh 3½-year highs against the euro and reached its highest level in four weeks, against the US dollar. The move came after a surge in borrowing rates for Spain stoked fears of Madrid seeking an international bailout, followed by another selection of disappointing US economic data.

The euro fell across the board after Spain’s borrowing rates climbed back above levels widely seen as unsustainable, following a rather expensive bond auction.

Weak US data kept up talk of more Federal Reserve stimulus, which saw the US dollar give way to its more yield-heavy rivals such as the Canadian and Australian dollars. The yen also took advantage but the Japanese currency was unable to keep pace with the pound.

Sterling

Sterling reached another fresh 3½-year high against the euro after Spanish borrowing costs climbed sharply reminding analysts that Europe’s sovereign debt crisis is still far from being resolved. In addition, US economic data missed forecasts by some margin, strengthening speculation the Federal Reserve may deliver more monetary stimulus at its meeting on August 1 in order to regenerate a slowing economy.

US dollar

US economic data showed existing home sales falling to eight-month lows in June; weekly jobless claims rising by more than forecast, and a regional manufacturing report showing factory activity shrinking for a third month. However, traders will still be wary that although recent fundamentals point towards a weakening economy and US dollar, the greenback could easily snap back if eurozone risks flare, thus rekindling demand for safe haven currencies.

Euro

Europe’s never-ending debt market jitters hit the headlines again, taking the euro to new depths amid mounting worries that Spain could become the next, and perhaps most significant, casualty of the sovereign debt crisis. While Germany gave the eurozone the go-ahead on a €100 billion loan to save Spain’s banks in a vote, the Spanish government was forced to pay a record high price at an auction of bonds; taking Madrid’s borrowing rates higher and back into perceived bailout territory.

Japanese yen

With Europe still fiscal-fire-fighting, and investors speculating about a third round of US quantitative easing, the yen reached six-week highs against both the euro and US dollar. Traders will, however, remain cautious against over committing ahead of critical Japanese inflation data which may prompt more warnings of an overvalued yen from officials in Tokyo.