In what proved to be a volatile day, the US dollar was yesterday’s biggest winner as global growth concerns continued to dominate the markets this week.

The US dollar index, a broad measure of the value of the US dollar relative to a basket of currencies, finished 1% higher on the day as investors continued to be spooked by the IMF’s cut on global growth forecasts from Monday (reduced to 3.3% from 3.5%). As a result the safety of the US dollar was sought following heavy falls across European stock markets, with notably the German DAX falling by 2.35%.

In what proved to be a volatile day, the US dollar was yesterday’s biggest winner as global growth concerns continued to dominate the markets this week.

The US dollar index, a broad measure of the value of the US dollar relative to a basket of currencies, finished 1% higher on the day as investors continued to be spooked by the IMF’s cut on global growth forecasts from Monday (reduced to 3.3% from 3.5%). As a result the safety of the US dollar was sought following heavy falls across European stock markets, with notably the German DAX falling by 2.35%.

Adding to the gloomy outlook of global growth, German Bundesbank head Jens Weidmann warned that the European economic recovery may last a decade. Weidmann also suggested that the European Central Bank should reduce interest rates if new economic data warrants it. Unsurprisingly, the euro suffered a rout in afternoon trade following these comments, losing 0.8 cents against the pound and just over a cent against the US dollar in the space of an hour.

The pound had a bad day generally as unemployment climbed to 7.9% and wage increases slowed adding to concerns over the UK economy. The figures do give sour reading and despite the vote on further quantitative easing remaining unchanged for the third month in a row, investors should not underestimate the possibility that later on the year we will indeed see additional stimulus to support economic growth.

In the afternoon we saw the Bank of Canada hold interest rates at 1%. More interestingly however the BoC lowered growth forecasts for 2013 from 2% to 1.5% and warned that the economy may not return to full capacity until the middle of 2015. With to the recent falls in commodity prices also putting pressure on the Canadian dollar, sentiment on the currency appears to have changed to negative and thus further weakness in the Canadian dollar is forecasted.

Looking ahead to today, UK retail sales will come into focus to hopefully give a better idea as to what next weeks GDP figure may reveal. The Philadelphia Fed Manufacturing Survey will be looked at to guide investor appetite for risk or for safety.

Given the current sensitivity and reaction of markets to negative data, the ability to pick the top and bottom of a price move will prove to be very difficult and could well be a dangerous game to play. Instead, clients will do well to take advantage of any small gains their favoured currency may make to make the most of current conditions.

Key Announcements:

9.30am – GBP – Retails Sales (Mar): Expected to drop to -0.6%.

N/A – EUR – 10 Year Spanish Bond Auctions.

N/A – EUR- 10 Year French Bond Auctions.

13.30pm – USD – Initial Jobless Claims (Apr 13): Expected to increase to 350,000.

15.00pm – USD – Philadelphia Fed Manufacturing Survey (Apr): Expected to increase to 3.3.