Signs of recovery in Europe and a barely ajar door at the Federal Reserve to boost interest rates next month put a brake on the US dollar’s modest winning streak. America’s currency has been in better spirits, benefiting from talk the European Central Bank may strengthen its already potent stimulus over the coming weeks and renewed signs of life in the world’s biggest economy. The US economy’s lethargic start to the year had weighed on the dollar and dropped it near four-month lows last week against a currency basket. A reminder of the overall sound shape of Britain’s economy helped sterling outperform its top peers. UK retail sales soared 1.2 per cent in April which was more than expected and the best showing by consumers in five months. In the euro zone, French business activity grew at a faster pace, although growth in the leading German economy lost a little momentum. Canada’s dollar held near one-month lows on the eve of critical consumer data.

Euro

The euro rose above three-week lows against its US counterpart, though shaky underlying sentiment contributed to its fall to two-month lows against sterling. The euro firmed after business activity in France picked up in May. That was heartening news since recovery in the French economy has largely been a laggard. But any support to the euro from the French data shouldn’t get it far as activity in the top German economy ebbed in May. The big weight on the euro this week has been talk the ECB would strengthen its already potent monetary stimulus over the coming weeks to allow it scope to cut back on its policies later in the summer while bond market activity typically slows. Greece’s inability so far to secure badly needed rescue funds has also pressured the single currency

Sterling

Sterling caught a broad pop and strengthened to two-month highs against the euro after UK consumers stepped up spending in April, which served as a reminder of the overall sound shape of the UK economy. The 1.2 per cent gain in retail sales was three times stronger than expected. Sterling remains in a hole on the week against the dollar, still nursing a wound torn open by inflation figures which showed the first negative print in 55 years which reinforced Britain’s low interest rate outlook for the foreseeable future.

US dollar

US jobless claims rose a little more than expected in the latest period but broader gauges of joblessness brightened which augurs better for the dollar. The dollar’s bullish revival this week lost a little drive after Fed minutes all but doused expectations of a midyear move to boost interest rates. Consensus views expect a Fed rate hike around September. Fed officials will be armed with one more monthly jobs report before deciding what to do with interest rates next month.

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