Sterling hit a 5 1/2-month high yesterday against a dollar weakened by worries about the U.S. economy, marking the fifth day of gains for the pound since the Conservatives were voted back into government. Sterling had earlier been boosted by comments by Bank of England Governor Mark Carney, who said, when asked in a BBC interview if interest rates were likely to be higher by this time next year, “It’s possible, but it depends on the evolution of the economy.” Carney also said sterling’s strength might weaken growth, echoing comments made on Wednesday when he said a strong currency was “relevant” to the path of interest rates. Expectations Britain would be the first to raise rates after the U.S., as well as the European Central Bank’s 1 trillion-euro quantitative easing programme, helped drive the pound to its highest in almost seven years against a trade-weighted basket of currencies. That was bad news for British exporters. Sterling traded as high as $1.5815 on Thursday, its strongest since late November, before edging back down to $1.5753, still up 0.1 percent on the day. The euro also hit a three-month high against the dollar. Commerzbank said in a note that downgrades to productivity forecasts indicate the Bank would not be comfortable with the pound’s appreciation over the longer term.
The euro reached a three-month high against the dollar yesterday, as investors digested strong European growth figures from earlier in the week coinciding with a continuation of soft U.S. economic data across the Atlantic. EUR/USD jumped to a session-high of 1.144, its highest-level since the 5th February, before falling back to 1.1408 in U.S. afternoon trading, up 0.44%. While the euro is still down more than 5.5% against the dollar since the start of the year, it is up nearly 6% since falling to 1.0764 on the 1st April.
The dollar struggled near three-month lows against the euro today, with mixed U.S. data doing little to ease investor concerns that the pace of recovery in the world’s largest economy may be too slow to allow interest rate hikes soon. The number of Americans filing new claims for unemployment benefits fell last week to near a 15-year low, even as the economy struggles to regain momentum after abruptly slowing in the first quarter. But separate data showed U.S. producer prices were much weaker than anticipated, adding to a series of soft economic data in recent weeks and cementing expectations that the Fed can afford to wait until late this year before raising rates. After Wednesday’s disappointing retail sales, some analysts took some comfort that labour at least seems to be progressing well in Q2, but it will take more than one slightly better jobless claims number to turn USD around. Indeed, the dollar stayed on the defensive against the euro and sterling, which climbed to three- and 5-1/2 month highs of $1.1445 and $1.5815 respectively. Both currencies were just off those peaks in mid-morning Asian trade. That left the dollar index wallowing at four-month lows. The index is down 1.5 percent so far this week and has dropped 7 percent from a 12-year peak of 100.39 on March 13. Yet, the dollar fared better against the yen and the Antipodean currencies. It last stood at 119.38 yen , having bounced off a two-week trough of 118.885. U.S. data due later today include industrial production for April and the University of Michigan’s preliminary May reading on consumer sentiment. Some other analysts said there is still some hope that coming data will show the U.S. economy regaining momentum after a very slow patch in the first quarter. That might see markets quickly price back in a stronger chance of a rate hike by the Federal Reserve this year.