LONDON (Thomson Financial) - The dollar and yen remained softer, while the euro gained ground, after encouraging euro zone and US economic data and a higher open in stock markets helped investors' regain risk appetite.
Equities were helped by US retail sales figures that showed a 0.2 pct monthly rise in October, in line with the market consensus. At the same time PPI was up only 0.1 pct, below expectations for a 0.3 pct rate.
The encouraging news helped further improve risk appetite among investors, who returned to selling lower-yielding currencies like the dollar and the yen in favour of the higher-yielding euro and commodities-based currencies.
"Carry trades are revived due to the return of risk appetite -- courtesy of strong US retail sales," said Ashraf Laidi at CMC Markets.
On top of this, the euro was helped this morning by robust 3Q GDP data, which showed a 0.7 pct quarterly gain for a 2.6 pct yearly rate.
"The data have powered up the euro against the dollar... and with central banks and sovereign wealth funds eyeing an increased allocation into euro-denominated assets, the latest euro zone releases continue to show no considerable drag on growth as has been the case in the US and UK," Laidi said.
Meanwhile, the pound was lower across the board after the Bank of England today gave its clearest indication yet in its Inflation Report that it would need to cut interest rates in the future.
In its official forecasts, the central bank said that interest rates would have to fall to 5.1 pct by the end of 2009 -- in line with market forecasts -- in order to keep inflation within the 2.0 pct target.
When the first cut will be delivered is now the matter of speculation.
"Given near-term inflationary pressures from the surge in oil prices as well as signs that the economy remains resilient, we believe the BoE is unlikely to ease rates next month already," said Matthew Sharratt at Bank of America, who forecasts the first cut in February.
Despite the downside risks to growth, inflationary pressures linger in the economy as oil prices remain near record highs, suggesting more weak UK economic data will be required before the BoE kicks off its monetary easing cycle.
London 1605 GMT London 1340 GMT
US dollar
yen 111.39 down from 111.51
sfr 1.1214 up from 1.1209
Euro
usd 1.4685 down from 1.4694
stg 0.7110 up from 0.7098
sfr 1.6301 down from 1.6470
yen 163.57 down from 163.83
Sterling
usd 2.0652 down from 2.0704
yen 230.04 down from 230.67
sfr 2.3159 down from 2.3186
Australian dollar
usd 0.9009 down from 0.9038
stg 0.4362 down from 0.4363
yen 100.36 down from 100.67
New Zealand dollar
usd 0.7648 down from 0.7658
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