Sterling jumped to fresh three-and-a-half-year highs against the euro after Moody’s downgraded a number of Italian banks, putting worries about Italy’s finances back on the crisis table alongside Spain’s banking risks. The pound also climbed and is trading near two-week highs after another fall in US retail sales in June increased speculation ahead of the semi-annual statement on the US economy and monetary policy from the Federal Reserve’s chief, Ben Bernanke. The pound also rose to two-month peaks against a basket of currencies, offering traders a steady source of shelter from Europe’s economic and fiscal mess. Eurozone data showed imports falling sharply in May while politicians in Germany decided to delay a decision on the euro region’s latest bailout strategies until September.
Sterling
The pound rose to fresh three-and-a-half-year peaks versus the euro as investors continue to seek refuge from Europe’s fiscal troubles. Sterling also climbed to near two-week highs against the US dollar in front of the monetary policy update from the Federal Reserve in which chairman Ben Bernanke is expected to keep alive the chances of more US quantitative easing. However, UK assets could easily have run into selling bets after the International Monetary Fund slashed its 2012 growth forecast for the British economy. The IMF now expects the UK to grow by only 0.2 per cent this year, down from estimates of 0.8 per cent just a few months ago.
US dollar
The US dollar sank by nearly 0.8 per cent against a basket of currencies after traders reacted negatively to data showing a third consecutive monthly fall in US retail sales. Federal Reserve chairman, Ben Bernanke, will deliver his semi-annual economic and monetary policy assessment to Congress.
Euro
Rating agency Moody’s added another weight around the euro after it downgraded a long list of Italian banks, keeping up talk of Italy joining Spain at the heart of the debt crisis. The shared currency plumbed new multi-year lows against the British pound and could face additional pressure this week although the markets focus on US monetary policy over the next two days could help provide some relief.
Canadian dollar
Trading close to record all-time highs against the euro, the Canadian dollar will be under the spotlight with the Bank of Canada set to announce its latest interest rate decision. Investors expect policymakers to hold rates at one per cent but hint at tighter monetary policy in the near future.