After eight weeks of upward progress on the back of the European Central Bank’s “Draghi Plan” to save the single currency the euro ran out of steam. At the beginning of last week investors came to the conclusion that their optimism had been overdone. Whether or not the plan would eventually take effect, it was unlikely to progress from words to action in the near future. With this in mind investors reduced their euro holdings, money transfer are going into the safe-haven yen and US dollar.
The brief panic of ten days ago, when news of a third round of quantitative easing by the Federal Reserve sparked a rash of dollar sales, was forgotten. An announcement that the Bank of Japan would also embark on further QE held the yen back for only a few hours. Perceived safety counted for more than the jam-one-day of a revivified euro system. The euro found itself at the bottom of the heap.
For once sterling was able to avoid the downward drag of the euro. It celebrated its newfound – if perhaps only temporary – freedom by accompanying the US dollar to second place in the week’s chart. Sterling had nothing particularly to brag about; reaction to the week’s few UK economic data smacked more of relief than jubilation. Inflation was a touch lower at 2.5%, retail sales fell by less than expected in Olympics August and at this month’s meeting no member of the Monetary Policy Committee voted for more QE.
Other than the euro’s relapse and sterling’s joint number two slot, it was a fairly dull week. The lead-up to the end of the month threatens to be no less tedious. With no top-tier economic statistics on the agenda it will require unscheduled events or comments to get things moving and increase international payments.
