FOREX: weekly review
The euro remained under pressure this week, touching a six-week low against the dollar as worries over Greek government debt continued.
Speculation at the start of the week that Greece was considering leaving the eurozone, which was vigorously denied, and concerns that Athens might restructure its debt drove the single currency lower. This heightened concerns about the finances of other countries on the periphery of the eurozone.
The euro also suffered, along with commodity-linked currencies, from heightened investor risk aversion, which fed haven demand for the dollar and the yen.
However, the single currency regained some poise on Friday as figures revealed French and German growth exceeded expectations in the first quarter. This helped stabilise the euro and heighten expectations that the European Central Bank would deliver a further rise in interest rates at its policy meeting in July.
German gross domestic product jumped 1.5% in the first quarter compared with the previous three months, and French GDP rose 1%, exceeding economists’ median estimates of 0.9% and 0.6% respectively.
Over the week, the euro eased 0.8% against the dollar and declined 0.8% against the yen.
The single currency rose against the pound, however, gaining 0.1% over the week.
Sterling suffered as poor trade data, a growth downgrade from the Bank of England and weaker than expected manufacturing and industrial production figures combined to raise worries about the health of the UK’s economic recovery.
The Bank of England left its main interest rate at a record low of 0.5% on May 5.
European Central Bank President Jean-Claude Trichet signaled on the same day that policy makers may raise borrowing costs after June, following a decision to keep their main rate at 1.25%.
The Confederation of British Industry lowered its economic growth estimates for the U.K. on May 9, saying gross domestic product would expand 1.7% this year compared with a February estimate of 1.8%.
The U.K. economic outlook may worsen further as Prime Minister David Cameron’s coalition government battles a fiscal deficit running at almost 10% of gross domestic product by raising taxes and implementing public spending cuts.
The central bank said this week that inflation may reach 5% later this year, more than double its 2% target, even while risks to economic growth remain “skewed to the downside.” Inflation expectedly slowed to 4% in March from a year earlier, up from 4.4% the previous month, the U.K. office for National Statistics said April 12.