European markets have woken up to the news that Cyprus has failed to come to an agreement with Russia over a potential bailout, leaving the door wide open for more selling pressure in what has been a torrid week for the euro. The single currency suffered across the board after key manufacturing and service indices moved further into contraction territory. A wider picture of a faltering economy is becoming more evident in a week where Cyprus has emerged as the next major threat to the EU’s recovery. There was nevertheless some positive news for the UK as retail sales in February showed healthy growth. Despite the positive figure, analysts dampened the mood by claiming such a jump wasn’t too surprising due to January’s dire figures as a result of the impact of poor weather. This figure hasn’t removed fears of a triple-dip recession; however, optimists will certainly be hoping the economy is starting to move in the right direction once again.
Sterling
On a day when economists continued to analyse the potential impact of the budget announcement, sterling received an unexpected boost in the form of retail sales for February which dramatically exceeded expectations. Forecasts were blown away by a reading of 2.1 per cent for last month, giving the pound a strong start to the session. Analysts explained the surprising jump by substantial online sales in a month riddled with bad weather. Significantly, the pound gained 0.67 per cent against the euro as uncertainty continues to cloud the single currency due to the on-going bailout negotiations for Cyprus.
US dollar
Following Sterling’s 0.35 per cent rise, the US economy showed further signs of economic recovery after some positive data releases for existing home sales and the Philadelphia Fed Manufacturing Index for March. The US dollar also made significant gains against the euro as its safe haven appeal rose on news surrounding the uncertainty in Cyprus.
Euro
It was another struggle for the single currency after a slow-down in Cypriot negotiations was compounded by poor eurozone manufacturing and service PMIs. Both indices moved further into contraction territory and the euro dipped by 0.3 per cent against the US dollar but nevertheless showed signs of resilience after yields on Spanish and Italian debt moved lower, with a particularly successful bond auction of €4.5 billion in Madrid. Hopes of a Cypriot bailout are stuttering once again with news emerging that Russia has failed to come to an agreement with the country.