The euro weakened over speculation China was looking at diversifying its euro denominated reserves. However, comments coming from China have alleviated these fears and the euro has bounced back up against the US dollar taking the pound higher with it.

Sterling

Signs that central banks, particularly the Federal Reserve, may reduce credit lines in the near future unsettled the pound. However, sterling was able to relax as the threat of risk aversion waned somewhat on mortgage data. Mortgage approvals showed an increase of 15.5 per cent with the amount of lending rising by £1.825 billion in April.

US dollar

The US dollar story of late is that of a strengthening currency with an economy in the midst of a healthy recovery from recession which is seeing additional support from risk aversion. The dollar was given an additional boost when US new home sales posted their best reading in nearly two years. Sales were expected to come in at 430,000 but instead posted a gain of 504,000, the highest since May 2008.

Euro

German consumer sentiment and French consumer spending data disappointed to the downside which was not surprising as the crisis in the eurozone rolls on. European Central Bank officials stressed their focus on price stability and that they would take measures to calm any threat to their monetary policy.

Japanese Yen

Data showed that Japanese exports posted their fifth straight month of gains rising 40.4 per cent in April from a year earlier and was above the forecast of 38.9 per year. Interestingly, exports to the eurozone area were not impacted by the strength of the yen or, indeed, the weakness of the euro although some warn that the impact will be felt if there is no turnaround in the European debt crisis.