The greenback ran into a technical wall with investors taking profit on its rapid climb this month, stopping short the US currency’s move back towards a three-year trade-weighted high. Profit-taking and month-end positioning allowed the sterling to bounce back versus its US counterpart having hit fresh two-month lows earlier in the day following poor UK retail sales data.

The euro also rose sharply, supported by the European Commission’s recommendations for less austerity in Europe; a focus which has been intensifying the region’s economic recession and pressuring the European Central Bank to become more active with monetary easing.

Economic data from the UK and eurozone should continue to reinforce both the sterling and the euro before attention turns back to the strength of the US economy and the chances of seeing tighter US monetary policy.

Sterling

The sterling came within a whisker of dropping below a key trading level against the US dollar after a measure of British retail sales activity fell to its lowest in over a year in May. The CBI’s distributive trade survey tumbled from -1 in April to -11 in May, confusing analysts who had widely expected a +3 figure which would have supported hopes that Britain’s economic recovery was stabilising. The sterling bounced back later though, climbing above two-month lows against the US dollar as investors decided to cash-in on the US currency’s rapid advance this month.

US dollar

The US dollar’s runback towards recent three-year peaks ran out of steam, with traders booking profit on the greenback’s overall strength as financial markets continue to consider the implications of less monetary stimulus from the Federal Reserve. The US dollar weakened a full percentage point against the euro in a volatile session and fell sharply versus the pound, Swiss franc and yen.

Euro

A retreating US dollar and recommendations from the EU for a softer austerity approach to policies in Europe bolstered the euro, pushing the single currency up towards a two-week high against its US rival. Data showed a large jump in unemployment numbers in Germany although the country’s overall jobless rate remained unchanged at 6.9 per cent in May. Europe’s change in tactics and focus towards more pro-growth policies may ease pressure on the European Central Bank to consider additional monetary easing, a factor which has undermined the euro for a number of weeks now.

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