With most of Europe closed for a public holiday at the beginning of the week and a limited calendar of economic data, investors were forced to turn elsewhere for news to drive currency markets. Unfortunately, turning to the headlines did not prove to be all that inspiring. Investors started to lack confidence in the global economic recovery, which soured sentiment and record levels that had been set in many equity markets, prompting currency traders to move into safe haven currencies such as the Japanese yen and Swiss franc. The World Bank revised lower its growth forecast for 2014 this week. Additionally, the IMF gave warnings of another property bubble forming, which could unleash damage on to global financial markets should it pop unexpectedly. Lastly, a rise in the price of crude oil also damaged investor sentiment. The higher oil prices resulted from growing geopolitical concerns coming out of Iraq/Syria.
Euro
The euro remained near year to date lows against the US dollar, while maintaining 18-month lows against sterling. The euro was initially impacted by the fallout from last week’s central bank announcement setting into the hearts of investors. Digesting the significance of last week’s move by the central bank continued to limit the euro’s ability to make any suitable gains this week. Eurozone industrial output figures improved from last month, which saw the first annual decline on record since August of last year. On the other hand, output per country remains mixed.
Sterling
Sterling continues to see support for economic data as well as from comments by policymakers. Industrial and manufacturing output, as well as the claimant count and ILO unemployment data this week did their part in strengthening sterling. The rate of unemployment released for April was the lowest seen since 2009, while the claimant count continued to fall by more than 20,000. Unfortunately, not all the news was as positive. Figures showed wage growth was still slow. A RICS housing survey saw its index rise to +57 from an upwardly revised figure in the prior month of +55. The data continues to fan fears of a housing bubble forming in the UK and will increase expectations for the central bank to take action, thus supporting the local currency.
US dollar
The economic data for the US came later in the week. US retail sales and producer prices continued to reveal a growing economy with weak price pressures. The data did not disrupt the outlook for next week’s central bank policy meeting. Rather, the stronger growth figures continued to provide some support for the US dollar.