Focus monetary policy announcements from the Bank of England and European Central Bank pushed cable to five-week lows, while another disappointing economic report from Germany kept up pressure on the euro.Although the BoE is not expected to make any changes to its monetary stance, the ECB will probably repeat warnings about the health of the eurozone economy and signal a very dovish monetary policy outlook. Weak prospects in Europe may help sterling regain some ground on the euro, however, if investors sense that troubles in Europe will push the BoE into additional quantitative easing, sterling may struggle to attract buyers.

Sterling

Sterling fell to its lowest level since November 31 against the US dollar despite a pick-up seen in Britain’s import and export trade, as investors looked ahead to monetary policy announcements from the Bank of England and European Central Bank. The BoE is not expected to make any changes to interest rates, nor the size of its £375 billion asset purchases scheme. However, with the ECB likely to repeat warnings about the eurozone economy, the UK’s main trading partner, minutes from a BoE meeting, which will be released in two weeks’ time, will probably display a committee concerned about the British economy falling back into recession.

US dollar

The US dollar strengthened slightly from safety flows as investors worry the European Central Bank will outline another gloomy growth outlook for euro area economies in its monetary policy statement. However, the greenback has found gains limited after Chinese economic data beat market forecasts by some margin, adding to optimism the global economic recovery is building. Markets are likely to watch the ECB’s press conference very closely and dovish remarks may fuel further demand for the US dollar.

Euro

German industrial output grew by just 0.2 per cent in November after a two per cent contraction a month earlier according to official data, leaving traders who had forecast a one per cent expansion disappointed in front of European Central Bank announcement. The ECB will wrap up its latest monetary policy gathering and although markets widely expect no change to interest rates, recent economic data could force a very dovish policy outlook from central bank president Mario Draghi. The ECB warned in his previous statement that policymakers have considered using negative rates on deposit accounts to help spur business activity with the euro area now in recession.

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