Daily currency report
Overview
The euro inevitably snapped back, dusting off recent concerns about the eurozone economy with the focus very much back on the euro area’s improving fiscal outlook. This also allowed higher-yielding currencies to attract more interest, breaking down the safer US dollar’s dominance over recent sessions that had taken the greenback to two-week highs on a trade-weighted basis. Sterling climbed to within sight of three-week highs against the US dollar following above-forecast retail sales data which has put the British consumer under a much brighter light and the Bank of England under less pressure to continue steering the economy.
Sterling
The pound rallied towards three-week highs against the US dollar after British retail sales growth in July thumped market forecasts, reducing fears that guarded consumers may keep the economy stuck in recession for longer. Spending rose by only 0.3 per cent but beat estimates of a 0.1 per cent decline while June’s number was encouragingly changed from 0.1 per cent to 0.8 per cent. Analysts are now expecting another robust figure in August supported by the Olympic Games. This suggests that with individuals opening their wallets on the high street, the Bank of England could put its plans to inject more cash into the economy on hold for the time being.
US dollar
The US dollar tumbled soon after reaching two-week highs against a currency basket following confidence-boosting comments from Germany which helped lift the dollar’s more risky counterparts. A re-energised British pound also played its part in damping demand for the greenback despite mixed US data showing the world’s biggest economy still moving in the right direction. US building permits, a sign of future housing market activity, surged in July but unemployment claims rose slightly more than they were expected to.
Euro
The euro snapped back, climbing by almost one per cent against the US dollar after German Chancellor Angela Merkel publicly backed the European Central Bank’s plans to tackle the debt crisis. The news is raising hopes of imminent support from Europe’s governments before a meeting between Germany and France. Further comments bolstering the region’s coordinated resolve to gain a handle on government debt could see the single currency rise further.