European leaders will gather over the coming days and the meetings could alter market views on the region’s ability to make further progress on the debt crisis. Furthermore, eurozone GDP data may underline concerns the European Central Bank may need to cut interest rates again. The euro’s fall helped bolster a recovery for sterling and the pound could make additional progress subject to the Bank of England’s inflation report. US retail sales figures will be in focus following solid data from the world’s biggest economy last week, which has helped push the US dollar to four-week highs against a basket of currencies. The yen’s troubles could ease in front of Japanese growth data and the Bank of Japan’s latest monetary policy decision towards the end of the week.

Sterling

Mark Carney, future Bank of England Governor, set out his British monetary policy vision in Parliament last week, which helped lift sterling from six-month lows against the US dollar. Carney allayed concerns that he would look to revolutionise policy targeting and encourage further stimulus, calming investors who feared the current head of Canada’s central bank was planning to scrap the BoE’s long-standing inflation goal.

US dollar

US economic data in recent days has continued to support hopes the economy is heading in the right direction despite its surprise fourth quarter contraction. Data from the Institute for Supply Management (ISM) revealed another month of solid growth in services, albeit at a slower pace, while data on Friday showed the US trade deficit shrank in December to its best reading in three years. However, the numbers failed to dislodge emphasis away from the European Central Bank’s press conference where caution from President Mario Draghi on the euro’s strength sent the single currency tumbling past two-week lows versus the US dollar.

Euro

The euro’s remarkable start to the year came to an abrupt end after Draghi rekindled worries the Central Bank may cut interest rates in the months to come. The ECB decided to leave interest rates untouched but Draghi reaffirmed the Central Bank’s accommodative policy bearing and downside risks to economic growth. The ECB chief also faced several questions on the euro’s sudden rise, hinting the ECB could respond if it began to impact inflation.

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