The pound is in danger of profit taking given its sharp spike to almost three-month highs against the US dollar ahead of local data which is forecast to show growth in Britain’s key services sector slowing. Sterling is already under the spotlight after UK construction sector data missed forecasts and comments from the Bank of England’s Adam Posen apparently supporting more quantitative easing. Similarly, the euro is also at risk after the chairman of the Eurogroup, Jean-Claude Junker, said that negotiations to write-off part of Greece’s debts are proving to be “ultra-difficult”. Talks between Germany and China failed to encourage any real risk-taking after Beijing said it is considering offering more support to Europe’s government rescue funds. Instead, investors became noticeably risk averse in front of critical US employment data. US Non-farm Payrolls, quite often a market-mover, is forecast to show the pace of jobs growth in the world’s leading economy losing steam. On the one hand, the release could take the US dollar to new lows against its main rivals if traders suspect the US Federal Reserve could expand its currency-devaluing, asset-buying program as a result.
Sterling
Growth in Britain’s key services sector is forecast to have slowed in January, according to data due to be released. CIPS services purchasing manager’s index is expected to have dipped, however, given the markets sensitivity to UK data of late, anything indicating a steeper slowdown in activity could weigh heavily on the pound.
US dollar
US Non-farm Payrolls data will be the focal point for markets and it is unclear how traders will react should the figures come out above, or below, market forecasts. US monetary policy is closely tied to the level of unemployment right now and after the Federal Reserve’s longer-than-expected timeline for low interest rates, a decline in jobs growth may prompt traders to begin pricing in more Fed cash-injections. The US dollar ended slightly stronger as caution grows ahead of the jobs report.
Euro
After initially a bright start, the euro faded after the chairman of the Eurogroup, Jean-Claude Junker, said negotiations to write-off part of Greece’s debts are proving to be “ultra-difficult”. Consequently, earlier hopes Athens would steer clear of bankruptcy vanished somewhat, prompting a fresh sell-off in the single currency. However, an agreement is still expected to be reached by Monday which helped limit the euro’s decline, while debt sales in both Spain and France added further credibility to the European Central Bank’s new liquidity operations.
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