The euro continued to dominate foreign exchange markets, registering 11-month highs against the US dollar and nine-month peaks versus the British pound after recent comments from the European Central Bank suggested investors should look forward to continued stability in eurozone financial markets this year.Concerns about the outlook for the UK economy saw the pound fall close to seven-month lows on a trade-weighted basis, and sterling is likely to see further volatility following critical UK consumer price inflation data. The US dollar remains weak after Federal Reserve chairman Ben Bernanke reaffirmed the Fed’s dovish monetary outlook, but Bernanke also gave global investors a reason not to abandon safe haven assets completely by warning Congress that they must act on the US debt ceiling.
Sterling
The British pound has fallen close to seven-month lows on a trade-weighted basis as investors remain concerned about the health of the UK economy and the British government’s plans to review its EU membership. Increasing optimism about stability in eurozone financial markets has also continued to weigh on the pound’s defensive appeal, forcing sterling to fresh nine-month lows against the euro.
US dollar
The US dollar could be in danger of further losses against the euro after Federal Reserve chairman Ben Bernanke said that the US economic recovery is still fragile, underscoring bets the Fed will continue to inject money into the US economy long into 2013 which tends to debase the US dollar. At the same time, US economic figures covering regional manufacturing and consumer spending are expected to add to hopes that the world’s biggest economy will continue to improve over the coming months; thus giving the global growth picture a much brighter outlook and encouraging investors to unwind safe haven US dollar positions.
Euro
The euro set an 11-month high against the US dollar, lengthening its almost non-stop advance following a reassuring monetary policy statement from the European Central Bank. However, the single currency has been pegged a little after comments from Washington concerning the US debt ceiling dampened investors’ appetite for risk. There are also some in the market who are questioning the durability of the single currency’s rapid climb given the region’s poor economic outlook and Italian elections next month.
Japanese yen
The Japanese yen suddenly snapped its recent sell-off, gaining sharply against its main trading partners after Japan’s Economy Minister, Akira Amari, warned that excessive yen weakness could have a negative impact on the economy through import costs.