Conflicting economic data releases powered the US dollar to three-month highs against the euro and the single currency appears likely to face a difficult end to the week following disappointing Italian debt auction and a warning from the Swiss National Bank. The SNB made no changes to its extraordinary peg between the Swiss franc and the euro at its monetary policy meeting, but left open the door to further currency intervention with the danger that eurozone risks could flare once more. Helping to keep investors fairly calm, US equity markets near record highs and the US dollar looking rather bullish, was the positive US retail sales data that increased optimism about the economy picking up steam. However, traders were less than cool about the monetary policy decision in New Zealand as the New Zealand dollar plunged after the country’s central bank warned yield-seeking investors that it will slash interest rates if the currency’s strength is not supported by fundamentals.
Sterling
Britain’s grim economic outlook forced sterling to new 1½-year lows against a currency basket but the pound rebounded to close the day higher, benefiting from a pullback which typically occurs when the value of a currency falls quickly in a short space of time. Investors’ demand for sterling was also pushed, at the expense of the euro, by disappointing eurozone industrial data which reinforced calls for the European Central Bank to offer the euro area economy more support by cutting interest rates.
US dollar
The US dollar surged to three-month highs against the euro and may continue to overpower its European rivals, including the British pound, following robust US retail sales data that reinforced views about widening economic growth differentials. The US currency is on the front foot again after the Swiss National Bank’s monetary policy announcement gave market participants even more reason to unwind positive euro bets and seek the safer US dollar.
Euro
Traders dumped the euro following poor economic data and a weak Italian Government debt sale which strengthened anxieties that an escape from economic recession is becoming more difficult as Italy’s political problems dent investor confidence. Italy’s borrowing costs rose reflecting lower demand amid political gridlock in Rome that is threatening the country’s ability to attract international investors. At the same time, data showed eurozone factory output fell by a sharper-than expected 0.4 per cent in January, dampening European Central Bank optimism that the economy will grow later this year without further monetary stimulus.