Grim data keeps euro, sterling under pressure

LONDON: A fresh batch of grim economic data kept the euro and the pound under pressure on Tuesday as sentiment faltered amid fears new COVID-19 hot spots across the world might jeopardise the swift recovery from the pandemic investors are hoping for.

The common currency lost further ground against the dollar in morning trading after underlying price pressures dropped again in the euro zone, underscoring fears that consumer price growth will remain anaemic for years.

Separately, Britain's Office for National Statistics said the economy shrank by 2.2% between January and March, its worst performance since 1979, as households slashed their spending.

"It's undeniable that today's data is not flattering, for both UK and Euro zone", commented Ricardo Evangelista, senior analyst at ActivTrades.

"Today's numbers offer support to the dollar, especially as concerns are growing over a second wave of the coronavirus pandemic", he added.

The euro fell as low as $1.1199, losing close to 0.4%, before picking up slightly towards midday.

Over the quarter, the European currency staged a 1.7% comeback after falling by a similar margin during the first three months of the year marked by the coronavirus financial market crash.

Sterling traded at $1.2280 after sliding to a one-month low of $1.2252 on Monday when concerns about how Britain's government would pay for its planned infrastructure programme added to worries about its ability to seal a trade pact with the European Union.

Against a basket of currencies, the dollar index was up 0.21% at 97.632, holding on to overnight gains after upbeat US home sales boosted Wall Street.

"From the market's point of view there is therefore nothing speaking in favour of the euro this morning, in particular in comparison to the surprisingly strong US home sales data yesterday", said Commerzbank FX strategist Esther Reichelt.

Market have been torn between in the past trading days between some positive economic developments, notably a rebound in factory activity in China, and a seemingly resurgent pandemic.

California and Texas saw record rises in new infections on Monday while in Britain, a reinforced lockdown was imposed in the city of Leicester.

A warning from US Federal Reserve Chair Jerome Powell that the outlook for the world's biggest economy was "extraordinarily uncertain", also kept investors on their toes. "Markets are jumpy. Tension remains between economic and virus pickup," said Moh Siong Sim, an FX analyst at the Bank of Singapore.

The safe-haven Swiss franc slipped marginally. The dollar rose 0.1% against the franc to 0.9506 while it also climbed against the Japanese yen, another currency considered a safe store of value, and was last up 0.1% to 107.73 yen.