The euro benefited by default for most of this week against the pound sterling and US dollar. The euro’s gains were not based on a worthy improvement in economic data or on the back of a better outlook for the eurozone. Rather the dollar’s decline came after the release of weaker-than-expected US Q1 GDP data, while sterling gains were held up by a statement from the head of the UK central bank that appeared to run counter to comments made in the prior week.

Euro

The euro certainly did not see much help from the eurozone economic data that was released this week. Nevertheless, the single currency was able to extend to two-week highs against the US dollar and the sterling. Flash estimates of PMI surveys released this week in the eurozone put second quarter growth at around 0.4 per cent, while the German IFO business sentiment data followed in the footsteps of the ZEW investor sentiment survey when it was released under forecast. The IFO sentiment figure, which is considered a leading economic indicator, fell to lows not seen in one year. In contrast with the business and investor sentiment surveys in Germany, consumer sentiment rose.

Sterling

The sterling managed to mostly maintain six-year highs against the US dollar and 19-month highs against the euro this week, despite historic policy developments. It fell early in the week when the governor of the central bank voiced his concerns over weak wage growth and productivity. The comments stood in contrast to a statement made earlier that seemed to suggest interest rates could be headed higher sooner rather than later. Further selling pressure was added to the sterling going into the Financial Stability Report while the central bank took historic action by taking macro-prudential measures to temper a red hot housing market. The measures that were outlined this week were considered an opportunity to push back rate increases, which also weighed on the local currency.

US dollar

The US dollar dropped towards the end of the week after backward and volatile data was released. Final first quarter GDP figures, which showed growth dropped a stunning 2.9 per cent, took the breath out of investors for a moment. Once that shock was removed, durable goods orders were seen declining. The head-to-head releases prompted the dollar to fall as it supported the more accommodative view taken recently by the US central bank. On the other hand, the economic data supporting the more accommodative stance was helpful to equity markets.

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