Sterling fell to fresh seven-month lows against the US dollar and could be forced even lower as analysts liken the Bank of England’s noticeable backing for British exports to Japan’s push for aggressive monetary easing where the Japanese Government is looking to spur economic growth through exports at the expense of a weaker currency.

The British pound plunged subsequent to the BoE’s dovish quarterly inflation report, and has dropped further after policymaker Martin Weale appeared to endorse the pound’s decline which he said will help UK exporters. The euro held above three-week lows against the US dollar but may climb should German economic sentiment survey point towards an economic recovery in the euro zone. However, gains for the euro may be limited as meetings in Europe revive interest in the euro region’s government debt outlook as Italy prepares to vote on a new government.

Sterling

The British pound fell to its lowest point since July 2012, against the US dollar, a new seven-month low, and may decline further as markets continue to interpret comments from the Bank of England about boosting British exports as promoting a weaker sterling. BoE member Martin Weale appeared to approve the pound’s recent slide in currency markets in a speech, and his comments follow quarterly inflation report in which Governor Mervyn King spoke extensively about needing higher exports to support Britain’s economic recovery.

Euro

The euro paused and held above a three-week low against the US dollar before a report that is forecast to show investor sentiment in Germany grew this month, suggesting Europe’s main economy will recover quickly from its fourth quarter contraction. ZEW’s economic sentiment index is expected to improve from 31.5 to 35 in February, adding to optimism the German economy may return to growth this quarter which should drive a recovery in the wider euro area. PMI surveys and the IFO measure of Germany’s economic condition, also expected to support this view. However, gains for the euro may be limited by worries the single currency’s sharp rise this year will harm the region’s recovery chances, particularly for countries such as France and Spain. Investors are also likely to remain guarded ahead of elections in Italy which could create a weakened government, making it more difficult for the country to effectively manage high levels of public debt in the middle of a swelling economic recession.

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