The US dollar index held tight to near four-year highs, while floating at 14-month highs against sterling and seven-year highs against the yen. The lack of US economic data and a public holiday on Tuesday damped momentum for further dollar gains. On the other hand, the lack of eurozone data did little to force the euro lower, which afforded the currency a profit taking session that helped it take back some of its recent declines. Sterling was the biggest mover as European importers were blessed when a dovish sounding central bank pushed back interest rate expectations. Sterling dropped quickly to three-week lows against the euro. Another currency that edged ever so quietly higher was the Swiss franc. The franc moved to fresh two-year highs and investors positioned going into the November gold initiative that could limit the central bank’s ability to manage its currency cap against the euro.
Euro
The euro languished in a relatively narrow range against the US dollar on the lack of momentum provided by a slow economic calendar in the eurozone and US. Against sterling the picture was different as sterling faced its own set of problems. The euro rose to three-week highs against sterling. Germany’s wholesale price index suggested upside inflationary pressures turned negative, which does not bode well for the outlook of consumer prices. Indeed, final consumer price figures and a glimpse of what Q3 growth looked like in the eurozone were highlights this week, which were not released until Friday. Expectations showed inflation would remain unchanged at 0.4 per cent year on year, while markets were unsure if German growth would come in flat or stay negative, as in the second quarter. European Central Bank’s Draghi reminded markets that the central bank remained prepared to embark upon additional policy measures. The comments stood somewhat in contrast to the head of the German central bank, Weidmann, who said that large purchases of government bonds were not likely.
Sterling
Sterling had a tough week as the pound came under heavy selling pressure putting it at three-week lows against the euro and 14-month lows against the US dollar. Selling pressure increased midweek when the Bank of England released a lower outlook for inflation. The outlook for growth was also revised slightly lower with downside risks coming from weaker Chinese growth and slower demand from the eurozone. The prospects for interest rate increases were thereby pushed back and sent sterling spinning lower.
US dollar
The Veteran’s Day holiday on Tuesday seemed to take some of the steam out of the US dollar, particularly when there was little this week on the economic calendar until Friday that could support a more optimistic growth outlook. Forecasts that showed retail sales expected to rise helped to limit the dollar’s downside.