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Daily currency report

Overview

Events outside of currency markets continue to dominate headlines, although swings in the US dollar/yen pair continued as the Bank of Japan and the Japanese Government react to the market volatility that has followed monetary policy guidance from the Federal Reserve.Federal Reserve chairman Ben Bernanke said that less quantitative easing could happen in the “next few meetings”, while minutes from their previous meeting, also released, did not rule out reducing monetary stimulus as early as June. The prospects of an end to the Federal Reserve’s enormous liquidity operations caused massive corrections across financial assets, leaving markets on shaky ground. The sterling steadied above recent lows helped by Britain’s revised first-quarter growth figures. The euro also held firm after the latest eurozone PMI surveys beat forecasts. Investors will watch for German business sentiment data for more clues about future European Central Bank policy.

Sterling

Revised first-quarter GDP released confirmed the British economy returned to growth with a 0.3 per cent expansion, allowing the pound to recover from its broad sell-off that was triggered by fresh concerns about Bank of England monetary policy. The sterling held above one-month lows against the euro and found a much-needed bottom against the US dollar before Britain breaks up for a long weekend. The BoE’s Paul Fisher will be speaking and is likely to comment on monetary policy and offer his views on quantitative easing.

US dollar

The US dollar suffered a hefty correction lower against the Japanese yen which spread into other crosses, but the greenback’s solid grounding overall should remain in place after yet another record weekly jobless claims figure. Data on the number of individuals seeking unemployment claims fell to the lowest in five years in the latest weekly period. Meanwhile, a separate gauge of US new home sales in April offered further evidence of a stronger housing market.

Euro

The euro slipped to a two-week low against the yen but held relatively firm against the US dollar, supported by somewhat positive flash PMI surveys from the eurozone which beat forecasts, showing a slightly slower pace of contraction this month. Still, the single currency’s outlook remains shaky ahead of the European Central Bank’s next policy meeting in June where president Mario Draghi may give the recession-hit economy another monetary boost.

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