Daily currency report

Sterling is heading back towards November highs against the US dollar after Friday’s forecast-beating UK retail sales data offered hope the British economy would avoid recession. However, the pound’s advance was held back somewhat as investors failed to over-commit themselves before the European summit where leaders will decide over Greece’s economic future. General appetite for risk suggests investors anticipate eurozone leaders will grant Athens its next loan and not risk a Greek default triggering another disastrous global crisis. That hopefulness kept the euro and other risk assets in demand while an announcement from China has given high-interest currencies a major boost. The People’s Bank of China relaxed banking rules by cutting its reserve requirement ratio by half a per cent in an attempt to keep more money circulating in the economy. The news has lifted equity markets and persuaded traders to make an early dash for better-returns. The currencies of Australia and New Zealand raced higher in response alongside other Asian units of exchange such as the Singapore dollar, that are closely linked to Chinese demand. As expected, the refuge US dollar is under pressure against emerging-market currencies while the yen has already breached fresh record lows against its rivals.

Sterling

With positive retail sales data coming in for the month of January, sterling should track events in the eurozone this week and if Greece can eliminate a substantial headwind by securing its next bailout and avoiding bankruptcy, the pound could march higher against the US dollar and yen.

US dollar

Expectations Greece will receive its long awaited €130 billion loan to pay its debts over the coming years kept investors leaning towards high-interest currencies as demand for the safer US dollar ebbed.

Euro

The euro is set for another major test this week as talks between eurozone finance ministers over Greece’s much-needed emergency loan resume. A positive announcement may offer the euro an immediate boost however; the sustainability of any potential rally should come under question with the release of key manufacturing and service sector growth reports.

Japanese yen

The Japanese yen crumbled to August troughs against the US dollar and three-and-a-half-month lows versus the British pound on further evidence the Japanese economy is in dire straits and continues to suffer from the yen’s record appreciation since the middle of last year.

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