The dollar and euro rose broadly on Friday benefiting from a steep slide in sterling after data showed the British economy was still mired in recession in the third quarter, confounding expectations for a return to growth. News the British economy shrank 0.4 percent in the three months to September overshadowed a relatively more positive set of eurozone economic data, knocking sterling off a six-week peak against the dollar.
Sterling tumbled almost three cents against the dollar and the euro jumped more than one percent versus the pound. This kept the dollar's trade-weighted index in positive territory, while the euro also drew support from the euro zone purchasing managers indices and the Ifo index of German business morale.
The UK data shock bolstered talk the Bank of England will extend its quantitative easing programme next month. And coming after relatively dovish statements from the Swedish and Canadian central banks this week, it cast some doubt over the strength and synchronicity of the global recovery.
"No doubt people will continue now to speculate there'll be more QE coming down the pipe in November and all of these things are not sterling positive," said Jeremy Stretch, strategist at Rabobank. At 1112 GMT, sterling was down 1.4 percent on the day at $1.6393, falling from a six-week high of $1.6693 before the GDP data.
The euro was up 1.5 percent on the day at 91.76 pence, on track for its biggest one-day rally in six months. This supported the euro's 0.1 percent gains on the dollar to $1.5042. In Asian trade, the euro took out option barriers at $1.5050 to a 14-month high of $1.5061.
The dollar index, a measure of its value against six major trading partner currencies, was up 0.2 percent on the day at 75.23. The dollar's trade-weighted gains were also supported by its rise against the yen, which was under broad selling pressure on the back of unfavourable US-Japanese yield spread moves and an accumulation of domestic factors. The dollar was last up 0.3 percent at 91.67 yen, having hit its highest in a month earlier in Asia at 91.92 yen.