The US dollar surged across the board and advanced by over 2.5 per cent against the euro after European Central Bank President Jean-Claude Trichet seemingly ruled out another ECB rate hike in June while also stressing the need for a stronger US dollar. Investors also moved back into US currency, spooked by a sharp sell off in stock and commodity markets. Oil prices tumbled by over eight per cent on the day with analysts fearing that the recent surge in input costs and inflation may have a detrimental impact on global growth. Sterling also recovered against the under pressure euro, rising from a 13-month low despite the Bank of England again keeping monetary policy unchanged following their meeting. With commodity prices tumbling, naturally closely linked currencies such as the Australian and Canadian dollars fell, although the Australian dollar did recover after the Reserve Bank of Australia warned they may need to raise interest rates in response to high inflation.
Sterling
Sterling recovered from a 13-month low against the euro after producing its biggest one day advance in four months. The Bank of England held monetary policy unchanged, keeping interest rates at 0.5 per cent, with the pick up in sterling fuelled by comments from the European Central Bank’s President Trichet. The pound also rallied against other rivals despite April’s CIPS Services PMI falling to 54.3 from the previous month’s 57.1 thus raising further doubts over the strength of the UK economy.
US dollar
A combination of factors from home and abroad saw the US dollar index, measuring its performance against a basket of currencies, jump by 1.5 per cent, representing a six-month high. The greenback found support from a falling euro and also surged after oil prices fell by over $12 per barrel and commodity prices tumbled as investors fear that rising input costs could have a detrimental impact on global growth prospects.
Euro
The euro fell broadly on by over 2.5 per cent on the day against the US dollar after the European Central Bank president seemingly ruled out another interest rate hike in June. Investors were expecting more strong rhetoric from Mr Trichet with consumer price inflation above comfort levels in the euro zone, however, failure to do so saw traders book profit on the euro’s recent ascent.
Japanese yen
The sharp decline in stocks and commodity prices led investors back into the safe harbor Japanese yen, resulting in unwanted gains for the local currency. However, traders took profit on the yen’s rise to multi-week highs against several rivals including the US dollar and euro, fearing possible intervention from Japanese authorities.
Travelex Global Business Payments Malta. (Free phone: 800 733 22) www.travelex.com/mt/