The pound continues to look lively, also hitting five-month peaks against the US dollar after comments from the Bank of England’s Adam Posen strengthened views that additional quantitative easing will be abandoned in the face of renewed inflation risks. In contrast, the US dollar is starting to look rather vulnerable after another batch of below-par US economic data stoked speculation the Federal Reserve could be forced to reconsider more stimulus. The euro may find tentative support if G20 leaders decide to bolster the International Monetary Fund’s fire-fighting capabilities. However, the euro will be at threat from German business sentiment report that may highlight the region’s poor growth outlook.

Sterling

Sterling soared to five-month highs against the US dollar and registered a new 20-month peak versus the euro as investors continue to backtrack on earlier bets the Bank of England are close to injecting another shot of stimulus into the UK economy. The pound could quite easily end the week on a more sour note, however, should British retail sales data trigger a correction in the market. Although forecasts are mostly positive, the report could highlight shaky consumer demand that may continue to put on the brakes on economic growth

US dollar

A number of US economic reports missed forecasts, adding to growing concerns the world’s biggest economy is at threat of another slowdown. The US dollar could move higher against rival currencies such as the Australian dollar that are closely linked to global growth if traders pick up on safe haven buying. On the other, the greenback could weaken over the coming days if investors become unnerved ahead of Federal Reserves meeting where policy makers could talk up the chances of more asset purchases.

Euro

The euro steadied somewhat after the closely-watched Spanish debt sale passed without causing too much disruption in bond markets. Although analysts remain deeply concerned the health of the country’s banking sector and fiscal imbalance may continue to deteriorate, the euro could find some short-term reprieve from the region’s sovereign debt crisis.

Japanese yen

The yen’s outlook has weakened considerably, with the Japanese currency now trading at April 4 lows against the British pound as markets look to distance themselves from the yen ahead of the Bank of Japan meeting. The prospect of more monetary easing to meet the group’s new inflation goal and weaken the yen for the export-heavy economy, has picked up.

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