Market sentiment favouring riskier currencies took another turn lower as concerns about a contracting eurozone and global economy resurfaced, while confidence linked to Europe’s re-energised fiscal push faded.
Trade data from Britain was equally concerning but that did little to deter sterling investment. Pound-buying seems to have been given the green light again after the Bank of England dismissed talk of an interest rate cut.
In contrast to the UK, China and Germany; the US published encouraging trade statistics on top of improved jobless claims data. This persuaded some traders to forget about the Federal Reserve’s monetary policy outlook and tighten their grip on the safe haven US dollar.
Dominating talk will be upcoming growth data covering the second quarter from the euro zone and German economies. Forecasts so far are looking extremely bleak for the euro and other risk-sensitive currencies.
Sterling
Sterling opens close to one-week highs against the euro, supported by recent comments from the Bank of England downplaying the chances of an interest rate cut as well as mounting concerns about a shrinking euro zone economy. The pound’s development in recent sessions, coming off record lows, could easily have unravelled though after the Office for National Statistics displayed Britain’s latest trade figures that showed another slump in exports in June.
US dollar
Weakly jobless claims fell from a revised 367,000 to 361,000 and when added to July’s non-farm employment figures, some investors feel the data could be enough evidence for the Federal Reserve to shelve any plans that it may have had to loosen its monetary policy. The US international trade deficit in June also shrank to its best level in 1½-years, adding to the belief that the economy’s slowdown may not be as abrupt as some analysts are predicting.
Euro
The euro appears to be running out of steam quickly, as optimism linked to Europe’s latest approach to the debt crisis gives way to growing worries about a contracting euro zone and German economy. A string of weaker than estimated German economic data has forced the single currency to shed as much as 1.5 per cent of its value against the US dollar since reaching one-month highs. Disappointing Chinese data has also contributed to a fall in risk appetite in recent days which has detained the markets appetite for risk, weighing further on the shared currency.