Daily currency report

Analysts expect the 17-nation economy to have contracted by 0.2 per cent in the second quarter and growth in Germany, the region’s most important economy, to have slowed sharply over the same period. The euro could therefore pull the strings in currency markets with investors keen to put pen to paper on ideas about how the European Central Bank will respond to the disappointing news. Sterling may provide traders with a steady platform as they switch between eurozone and US developments, unless British inflation data misses forecasts data.

Sterling

The pound may find itself following traffic in broader markets but remain busy nonetheless. Investors have eurozone growth and US retail sales data at the top of their agenda, which means sterling will probably play a support role in currency markets unless British inflation data reveals something unexpected. Investors are estimating consumer price inflation to have eased from an annual rate of 2.4 per cent to 2.3 per cent in July.

US dollar

Investors will examine the most up-to-date retail sales figures from the US to gauge whether or not cautious consumers are continuing to put the economy’s recovery at risk. Consumer spending, arguably the most important driver of the economy, has fallen for three consecutive months through to June, creating some last-minute nerves before the release that weakened the US dollar. Concerns are that another downbeat result may tip the Federal Reserve closer towards another round of quantitative easing.

Euro

News about the eurozone economy is likely to cover the front pages as Europe prepares to announce preliminary economic growth figures for the second quarter of this year. Demand for the euro has eased in recent sessions with most economists expecting to see a contraction across the 17-nation area which could speed up any thoughts at the European Central Bank about delivering another interest rate cut.

Japanese yen

Minutes from the Bank of Japan’s July meeting showed policymakers may be losing belief that Japan’s economy can sustain a moderate recovery in the middle of such an uncertain external environment and therefore stand ready to take new emergency monetary action.