The past week has seen the dollar in retreat and yesterday proved to be no exception, with the yen and sterling proving to be the main beneficiaries of dollar weakness, although for very different reasons. The US data has continued to fall to the disappointing side recently, with US retail sales data yesterday showing a 0.7% drop on the month. The result is that tapering is seen as less of a certainty when the Fed meets next month. Sterling has been one of the better performers against the backdrop, because on relative growth momentum, it continues to look solid in comparison to the US.
In Italy, the PM is due to resign today, but this is not proving to be a concern for the market, with a new government likely to be formed next week. Ahead of the US data this afternoon (Industrial production and Michigan confidence), the focus is on growth numbers in Europe, with stronger numbers already seen in France and Germany, both of which are helping give a better tone to the single currency in the early part of the European session. EURUSD has pushed to a high for the month of above the 1.37 level, with cable close to the 1.67 level, which takes it near to a 3 year high. Given that this is a Friday, there is risk of profit-taking on dollar shorts into the weekend, so this could make for greater volatility into the close of play.