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Daily currency report

Overview

The euro ran into profit-taking soon after reaching seven-week highs against the US dollar ahead of the European Central Bank monetary policy announcement. President Mario Draghi could outline a poor economic outlook for the eurozone economy, heading into 2013 with investors worried that it could mean further interest rate cuts. Similar pressures pushed sterling lower after UK Chancellor of the Exchequer George Osborne revised down Britain’s growth outlook in his Autumn Budget Statement. Investors backing the pound will also be feeling uneasy after ratings agency Fitch warned that Britain’s fiscal credibility is slipping after the UK missed key deficit reduction targets. Britain will publish export data before that the Bank of England is predicted to announce no changes to its monetary policy; however, investors still remain uncertain about the BoE’s money-printing plans.

US dollar

Economic data from the world’s top economy helped keep North American trading session relatively calm and the US dollar close to its recent lows against the euro and British pound, as investors continue to worry about the political stand-off in Washington concerning the US fiscal cliff. Although ADP’s monthly employment survey for November missed forecasts, separate data on the country’s services sector revealed an unexpected acceleration in business activity over the same month. November’s ISM non-manufacturing index gained from the prior month’s 54.2 level to 54.7, beating estimates of a slowdown in growth to 53.5.

Euro

The euro retreated after scoring seven-week highs against the US dollar and could end the week under some pressure as the European Central Bank prepares to publicise its latest interest rate decision and growth forecasts for the eurozone. Traders who have grown more confident about holding the single currency in recent weeks will be wary of ECB President Mario Draghi, announcing that Europe’s growth outlook is under threat and that the Central Bank may have to take borrowing rates even lower next year.

Sterling

Sterling saw little reaction to budget update but could face serious question marks after rating agency Fitch warned Britain that its failure to hit deficit goals undermines the reliability of the country’s fiscal structure. UK Chancellor, George Osborne unveiled his Autumn Statement in Parliament and disappointingly revised down Britain’s economic growth forecasts and extended the Government’s fiscal targets. Prior to the announcement, PMI data covering the UK’s dominant services sector showed the industry growing at its weakest pace in almost two years.

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