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 this week, Moneycorp reports.
At the beginning of last week investors came to the conclusion that their optimism had been overdone, said Moneycorp analyst Chris Redfern. "Whether or not the plan would eventually take effect, it was unlikely to progress from words to action in the near future," he explained. "With this in mind investors reduced their euro holdings, moving their money into the safe-haven yen and US dollar.
"The brief panic of 10 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 quantitative easing held the yen back for only a few hours, Redfern continued. "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 per cent, 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 quantitative easing.
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