The euro extended its spectacular rally while the pressure is clearly mounting on sterling as traders reverse safe haven flows and pour money back into the single currency area. Japanese markets were closed; however, more yen-negative comments from Japan’s Prime Minister, Shinzo Abe, should add to persistent selling pressure that has taken the Japanese unit to new two-and-a-half-year lows versus the US dollar.
Sterling
After European Central Bank chief, Mario Draghi, gave investors a somewhat hopeful assessment of Europe’s financial markets last week, safe haven flows have come pouring out of the British pound and back into the euro. At the same time, weak UK economic data also served as a fresh reminder of Britain’s grim economic situation, forcing sterling to nine-month lows against the single currency. Pressure on sterling is clearly mounting as traders continue to see the latest UK economic figures point towards a fourth quarter contraction for the British economy.
US dollar
The US dollar starts sharply lower on a trade-weighted basis having fallen to April 2012 lows against the euro after a somewhat optimistic monetary policy statement from the European Central Bank last week gave global investors a strong signal to dump the US dollar in favour of its higher-yielding European rival. Forecast-beating economic data from the US and Chinese economy in recent days has also boosted a wave of “risk-on” trading sentiment across financial markets. Investors will monitor a number of Federal Reserve speakers over the coming days whilst the US calendar will be full of top-tier economic data releases. Figures and comments suggesting the world’s number one economy is gathering momentum would probably weigh further on the US dollar’s safety appeal.
Euro
The euro produced a spectacular rally late last week after the European Central Bank voted unanimously to keep eurozone interest rates unchanged, and did not repeat earlier rhetoric that had suggested lower borrowing rates were imminent. The euro’s rapid climb took the currency to nine-month highs against the US dollar and pound, and to one-and-a-half-year peaks versus the Japanese yen. The shared currency’s latest rally comes despite recent data showing unemployment in the euro area reaching another all-time high and industrial activity in Germany slipping.
Japanese yen
The yen looks set to spend another week fighting speculation the Bank of Japan will align its monetary policy much more closely with the new Japanese Government’s aims to end deflation and devalue the yen.