Daily currency report

Hurricane Sandy in the US continues to dominate headlines and is clearly disrupting activity in currency markets. Strong US economic data and hesitant comments from Spain would usually weigh on the euro and bolster the US dollar’s attraction. However, the greenback opens under pressure from the euro and yen as nuclear alerts in the northeast of the US appear to be chipping away at the US currency.

The US dollar’s fall to one-week lows versus the yen was particularly surprising, after the Bank of Japan launched its second stimulus expansion in as many months. Sterling took a step back but may also follow the yen higher should UK retail sales data revive the pound’s post-GDP rally.

Sterling

Sterling edged lower as profit-taking followed the pound’s post-GDP rally, and after some Bank of England members had warned markets that the economy’s outlook still remains uncertain. The pound was also destabilised by safety-first mindset as US financial centres shut ahead of hurricane Sandy, and more of the same attitude is likely as economists start assessing the damages. Sterling will therefore look to use CBI distributive trades report to shift back into upward trend.

US dollar

Data showing a surge in US consumer spending pushed the US dollar through parity towards a three-month high against the Canadian dollar; but, investors seem to be betting against the greenback in other crosses, and actually seeking shelter from the safe haven US dollar as hurricane Sandy batters the area in and around New York, while uncertain US elections is also becoming a heavier weight for the greenback to carry.

Euro

The euro is looking fairly composed despite imminent data from Germany that is forecast to show a rise in unemployment for the first time in years. The single currency did show signs of weakness, however, after comments from both Italy and Spain suggested that Madrid will continue to resist seeking a bailout while the political landscape in Rome looks to be deteriorating again.

Japanese yen

The Bank of Japan launched another increase of its monetary stimulus plan, adding a further 11 trillion yen of planned asset purchases to help fight deflation and revive Japan’s flagging economy. The increase works out to be about £86 billion and highlights the serious risks facing the export-heavy economy since it marks the second expansion of the BoJ’s monetary support programme in as many months.