Currency markets are likely to shift focus from monetary policy to fiscal strategy as Germany prepares to meet with both France and Greece. Investors will be keen to assess what progress is being made to take forward the European Central Bank’s efforts to diffuse the crisis; however, indications so far do not bode well for the euro or risk appetite. Focus on economies last week kept traders busy but exchanging currencies at somewhat familiar prices. The eurozone economy contracted just as forecast but details about Europe’s austerity battle, which are expected to be announced over the coming weeks, may well carry more market-moving weight. Developments in Europe will inevitably keep the US dollar and Japanese yen moving with traders unlikely to venture too far from their safe haven base. The British pound is also looking more robust and may continue its recent revival.
Sterling
The pound may add to the strength it has shown recently in front of this week’s revised growth data that is expected to show the British economy contracted by a smaller margin than first thought. The revisions are due for release on Friday and government spending data and another retail sales report should keep traders busy in the interim period.
US dollar
The US dollar is facing another busy week despite the US market offering a calendar lacking any blockbuster economic data releases. The spotlight is therefore likely to shine bright on the eurozone with traders looking to see what new efforts governments are planning to put forward that may help Spain avoid a Greece-like rescue. Disappointment in Europe could restore the US dollar’s safety appeal following the currency’s somewhat weak finish last week.
Euro
The euro is set for another potentially volatile few days with investors keen to assess what progress governments are making to help the European Central Bank dissolve the region’s fiscal crisis. Germany is due to meet with both Greece and France this week and it seems that discussions could be arranged around Athens’ latest plea for a bailout extension. If investors feel Europe has taken yet another backward step to bring Greece back in line, confidence in the euro could disappear quickly.
Japanese yen
Sub-standard second quarter Japanese growth data last week has put markets back on alert about what new measures the Bank of Japan might adopt to speed up the economy, as well as weaken the yen’s export-crimping strength. Those concerns have forced the yen to one-month lows against both the US dollar and British pound.