Higher inflation rates in the UK and the US collided with stronger-than-expected growth figures in China to make for improved investor sentiment. That sentiment flourished when FOMC’s Janet Yellen told members of Congress that interest rates could move higher and faster if jobs and inflation data continue to show improvement. Those comments and the data released this week helped push the dollar to one-month highs against the euro as sterling moved to 22-month highs. Some of that more upbeat sentiment soured later in the week when the EU and US announced that new sanctions would be imposed against Russia, while concerns over a Chinese construction company grew. The Bank of China maintained a neutral bias on its monetary policy outlook this week, while the Bank of Japan announced that it was leaving its policy unchanged.

Euro

The euro suffered declines against all three of its major counterparts this week. It fell to one-month lows against the US dollar, 22-month lows against sterling and five-month lows against the Japanese yen. The euro was not helped by economic data or a report from the European Central Bank. The German ZEW investor sentiment fell for the seventh consecutive month to a one-and-a-half-year low on the back of the damage that increasing geopolitical concerns will have on growth. Eurozone industrial output was also seen falling. The data supported a report by the IMF which suggested the ECB should embark on a course of quantitative easing.

Sterling

Sterling had another impressive week, moving to 22-month highs against the euro and fresh four-year highs against the US dollar. The rise in the UK currency came on the back of higher inflation figures and better employment data released this week. The information helped to bring forward expectations of interest rate increases. The rate of unemployment fell, while the claimant count fell more than expected with downward revisions made to the month before. Unfortunately, not all of the UK data revealed strength as wage growth figures fell to lows not seen in 13 years. Policymakers remain concerned over the sustainable nature of UK growth, with wages growth remaining so low.

US dollar

The primary focus this week was on Yellen’s testimony on the health of the US economy in front of two Congressional panels. Initially Yellen seemed rather soft on her outlook for growth which weighed on the US dollar, but comments later relating to the jobs market and inflation figures helped to alter the outlook for US interest rates. Comments from fellow policymakers also helped to support the dollar as investors brought forward expectations of interest-rate increases. The comments from policymakers collided with economic data that showed price pressures growing, pushing the dollar higher this week.

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