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The dollar hit a two month low against the euro and a basket of major currencies as soft inflation and manufacturing data added to concerns about the strength of the U.S economy. Data released showed a third straight monthly decline in producer prices and came just a day after the Federal Reserve meeting minutes revealed policymakers think they may need to do more to boost the economy if a stuttering recovery slows any further. Eurodollar soared towards 1.30 while Sterling rose to 1.54 as investors removed their money from the safe haven currency. The dollar will remain under pressure if the current run on weak data continues. Today’s CPI and University of Michigan consumer confidence figures could foster some USD strength, though consensus is low.

Worries about the euro-zone’s fiscal crisis have been somewhat allayed by successful debt raisings by Greece, Spain and Portugal. Investors are anticipating that stress tests of European banks on 23rd July will paint a picture of a healthy regional financial industry. It is a slow day on the data front as we head into the weekend with Euro-zone trade data the only item released in Europe.

The pound extended gains to a fresh 10-week high against the dollar, as data mentioned above from the US kept pressure on the dollar. Market reaction was limited as Bank of England policymaker David Miles said it was not appropriate to raise interest rates now. He also downplayed the risk of inflation staying above target in a sustainable way without a pick-up in wage inflation. This view was, of course, different from BoE’s Sentance’s call for higher rates that he has reiterated several times of late.

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