Daily currency report
Overview
The US Federal Reserve sent financial markets spiralling after offering the clearest hint yet that it may slow its monetary stimulus operations in the coming months. The US dollar hit another trade-weighted record high after Chairman Ben Bernanke discussed the chances of reducing stimulus in front of lawmakers, while minutes from the Federal Reserve earlier policy meeting revealed some policymakers would be prepared to consider winding down quantitative easing as early as June. The sterling hit new lows after notes from the Bank of England’s May meeting and data on British retail sales underlined fears that incoming BoE Governor Mark Carney will stretch the bank’s monetary easing options further.The euro has come through euro area PMI survey’s relatively unscathed but could see some movement with the European Central Bank’s Jens Nowotny and Mario Draghi set to speak. Investors will also study revised GDP data from Britain.
Sterling
Consumer spending on Britain’s high street fell sharply in April while minutes from the Bank of England’s latest meeting showed some policymakers still favouring quantitative easing this month, pushing the sterling deeper into negative territory amid worries the BoE is not yet finished with monetary stimulus. Cable plunged to its lowest level since March 14 after data on UK retail sales revealed a 1.3 per cent drop last month having already fallen by an adjusted 0.6 per cent in March.
US dollar
Federal Reserve updates pushed and pulled the US dollar in aggressive fashion as investors tried to gauge the future direction of US monetary policy and whether or not the Federal Reserve was ready to slow or end its open-ended quantitative easing strategy. Eventually the greenback ended its session higher, hitting new record peaks after comments from Bernanke and minutes from the Federal Reserve earlier monetary policy meeting specified a willingness to reduce the central bank’s $85bn-a-month asset buying programme.
Euro
The euro will be under the spotlight as markets anticipate the latest PMI data covering the single currency area’s manufacturing and services industries. Forecasts suggest investors will see another month of contracting activity across the region, adding to pressure on European policymakers to react with a different approach to encouraging economic activity. The European Central Bank cut its benchmark interest rate to a record low last month and worrying data should highlight the risk of the ECB introducing another extraordinary policy measure in its June meeting to combat the area’s recession.