The euro tumbled to fresh 22-month lows versus the US dollar following weaker-than-expected eurozone economic data which is intensifying the area’s debt crisis. Pressure is now mounting on the European Central Bank to introduce a more aggressive emergency programme in order to contain the area’s economic and debt crisis. The news kept markets very much in defensive mode although selling of risk assets was not as strong as the previous day with investors in the preparing for a long weekend. The US dollar continued to dominate foreign exchange markets though, with the pound touching another fresh two-month low after revised data showed the British economy shrank more than expected in the first quarter. The yen fell as traders reacted negatively to data showing Japanese inflation is still dangerously below the Bank of Japan’s one per cent target, keeping alive the possibility of more monetary easing. However, the yen and other haven assets remain well supported and are expected to continue that way until investors know for sure whether or not will vote itself out of the eurozone on June 17.
Sterling maintained its downward trend versus the US dollar, tumbling to new two-month lows after revisions to first quarter UK growth data showed the British economy shrank more than expected. With conditions in the economy looking increasingly gloomier, sterling will find gains very difficult to come by over the next few weeks as investors mull over another Bank of England cash-injection at June’s policy meeting.
US dollar
US economic data gave the US dollar another competitive edge over its rivals by further indicating the economy’s relatively better growth outlook compared with Europe, keeping the greenback within reach of two-year highs against the euro and a currency basket.
Euro
The euro looks set for its biggest weekly fall this year after worrying eurozone economic data served as another reminder to markets that slowing business activity will continue to exacerbate the region’s debt troubles. The real worry for investors is data from the German economy showing manufacturing shrinking at its fastest pace in three years. Furthermore, ’s Ifo gauge of business sentiment fell more than expected this month suggesting Europe can no longer rely on to help drive growth across the euro area. As eurozone risks deepen, the euro, already trading at 22-month lows verses the US dollar, is likely to face more selling pressure.