The euro is back under the spotlight after ratings agency Standard & Poor’s lowered Spain’s investment rating, renewing speculation in the market the euro zone’s fourth largest economy is heading towards a Greece-like bailout. The British pound notched another new seven-month high against the US dollar and looks set to revisit 20-month peaks versus the euro as headlines from other Forecasts from most economists expect the US economy to have slowed over the first three months of the year, supporting the Federal Reserve’s dovish monetary policy outlook and pledge to inject more dollar-negative stimulus into the economy if required.

Sterling

Investors got a look at data on retail activity, although CBI’s distributive trades survey fell below estimates to -6 in April, worse than a fall to -4 which was forecast by analysts from the prior month’s 0 reading. Encouragingly though, the survey’s forward looking sales expectation measure jumped to February 2011 highs which helped sterling record fresh 7-month highs against the US dollar and stay within reach of August 2010 peaks versus the euro.

US dollar

Weekly jobless claims data raised more question marks about the strength of the US economic recovery, keeping demand for the safer US dollar limited despite fresh euro zone concerns. The trend in the number of people seeking unemployment benefits remained negative which does not bode well for the dollar ahead of the all-important non-farm payrolls data. Nonetheless, more or less muted price action in FX markets suggests that traders are focused more on critical first quarter US growth data.

Euro

The euro was back under pressure after weak euro zone economic data highlighted to region’s poor growth outlook and rating agency Standard & Poor’s downgraded Spain’s credit rating. Economic sentiment across the 17-member group fell again in April suggesting the periphery’s debt troubles are possibly having more of a negative effect on growth than previously thought.

Japanese yen

The yen is under widespread pressure after the Bank of Japan eased monetary policy more aggressively than what markets had expected. Policy makers increased asset purchases by 10 trillion yen versus the 5 trillion yen investors had predicted following a two-day meeting as government pressure continues to force the BoJ to take bold action against a weak currency and inflation risks.

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