The euro tumbled this week to eight-month lows against the US dollar, two-year lows against sterling and five-month lows against the yen. News from the IMF had an offsetting impact on currency markets. Investors were concerned going into the release of flash PMI manufacturing and service sector surveys this week in the eurozone assuming there would be room for disappointment. Investors were able to book profits on long dollar positions, which gave European importers another chance to buy currencies as the euro strengthened. Activity in currency markets became limited later in the week as investors looked towards next week’s FOMC meeting and US jobs data. Geopolitical concerns remained heightened, which maintained demand for safe haven currencies such as the yen and Swiss franc.

Euro

The euro faced some heavy selling pressure at the beginning of the week and was not helped out until PMI flash estimates for the manufacturing and services sectors were revealed. The decline of the euro came despite Fitch reaffirming its AAA rating and outlook for Germany and Luxembourg. Outside of PMI figures the data seen across the eurozone was not necessarily positive with PPI in Germany flat, industrial orders in Italy sharply in negative territory, and sentiment figures falling. After all the weak data seen at the beginning of the week, investors were well primed for good news and took advantage of the PMI surveys. The PMI services survey jumped to highs not seen in three years.

Sterling

Sterling saw a mix of data and event risk this week. After rising to two-year highs against the euro, the currency needed a break. The Bank of England minutes were seen as a disappointment to investors because the timing for interest rate increases was not made clear. Further public sector net borrowing figures showed the government struggling to keep on track to meet its deficit reduction plans. And a Rightmove house price survey revealed its first fall in 2014. This only helped to limit sterling’s upside. Indeed, most of the other economic data remained relatively strong and comments from BoE’s Carney helped to offset any weak figures seen at the start of the week.

US dollar

The US dollar rallied after economic data showed existing home sales rising to levels not seen in eight months, while consumer price figures rose above the central bank’s two per cent target for the second consecutive month. The improved economic data come just in front of the July 30 FOMC policy statement. The dollar’s rise was held up by an IMF report that lowered the growth outlook in the US for this year. On the other hand, the dollar’s downside remained safe heading into the policy meeting

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