Forex: Weekly review

The euro fell sharply from a one-month high against the dollar this week, failing to gain traction after the European Central Bank signalled that it would raise interest rates in July.

The euro staged a brief rally on Thursday after Jean-Claude Trichet, ECB president, used the words “strong vigilance” to describe the central bank’s stance towards inflation risk after its policy meeting, a phrase that in the past has signalled a rate rise at the ECB’s next meeting.

The euro reversed its gains, however, in what analysts described as a “buy the rumour, sell the fact” move given that so many investors were expecting the signal from Mr Trichet.

Indeed some said that the signal for a likely July rate rise left investors clear to focus on Greece’s debt problems and the continued squabbling between eurozone central bankers and finance ministers.

The euro, which hit a one-month high of $1.4696 ahead of the ECB meeting, lost 1.9 per cent to $1.4358 against the dollar over the week, fell 2 per cent to Y115.10 against the yen and was 0.7 per cent weaker at £0.8847 against the pound.

Sterling lost ground elsewhere, however, as warning from rating agency Moody’s over the UK’s triple A credit status knocked confidence in the currency.

A drop in UK industrial production also weighed on the pound. Over the week, the pound fell 1.2 per cent to $1.6226 against the dollar and lost 1.3 per cent to Y130.10 against the euro.

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