The biggest move in currency markets came after the Swiss National Bank held interest rates and announced that they will act if the stronger Swiss franc continues to pose a threat to the Swiss economic recovery. The franc tumbled as a result allowing the euro to continue its rise higher against safe haven currencies. Encouraging results in European bond markets also improved sentiment towards the single currency. In contrast, sterling fell after weak retail sales and manufacturing orders continued to raise fears of a sharp slowdown in the UK economy. The US dollar remains under pressure as more weak data, this time the US Philadelphia Federal Reserve’s index on manufacturing, supported expectations of further quantitative easing in the US. The US dollar does however remain firmly above recent 15-year lows against the Japanese yen after Japanese intervention weakened the yen against all rival currencies earlier in the week.

Sterling

Disappointing UK data combined to weaken sterling, sending the currency to almost two-month lows against the euro. Retail sales in August fell by 0.5 per cent, the first drop since January.

US dollar

Weak US data and improving appetite for risk kept the US dollar under pressure and trading at over five-week lows against the euro. The US Philadelphia Federal Reserve index on manufacturing contracted for the second month. This strongly offset encouraging capital flows data which showed strong foreign demand for US assets.

Euro

Investors’ appetite for risk and a deteriorating outlook for the US economy allowed the euro to reach fresh five-week highs against the US dollar overnight. The single currency also managed to post over one-month highs against the Swiss franc after the Swiss National Bank warned markets that the stronger franc is a threat to the Swiss economy. Eurozone data showed demand for the bloc’s exports still remains firm after trade balance figures for July came in significantly above expectations.

Japanese yen

The Japanese yen is heading for a weekly fall against rival currencies following this week’s government intervention in currency markets for the first time since 2004. Nervousness over threats of further intervention is keeping the yen on the back foot, trading at around five-week lows against the euro and one-month lows against the US dollar.

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