The US dollar surged and hit three-month highs against a basket of currencies as central bankers in the US appear concerned that open-ended asset purchases will leave its economy with long-term scars. The latest UK public borrowing data will be published and will probably accelerate losses for the pound if the figures raise concern amongst investors about next month’s UK budget update; increasing fiscal policy risks at a time where UK monetary policy worries are creating panic among traders exposed to the pound. The US dollar also jumped to one-month highs against the euro with traders likely to maintain that momentum in favour of the US currency should PMI surveys from Europe fail to maintain hopes the eurozone economy is over the worst of its economic recession.
Sterling
Minutes from the Bank of England left the British pound in tatters after it emerged that Governor Mervyn King had unsuccessfully led a small minority in the Monetary Policy Committee looking to restart money printing, which caught markets by complete surprise. Notes from the MPC’s February meeting showed King wanted to pump another £25 billion into the fragile British economy and that policymakers had considered cutting interest rates to help spur business activity.
US dollar
The US dollar rallied, hitting three-month highs against a currency basket and two-and-half-year highs versus sterling after the latest Federal Reserve minutes suggested the US central bank was already looking ahead to exit strategies from its open-ended stimulus programme. Markets had widely believed the Federal Reserve would continue to pump $85 billion-a-month into the US economy long into 2013 as it attempts to lower long-term unemployment. However, minutes from the Federal Open Market Committee’s January meeting showed officials were becoming concerned with the risks of non-stop asset purchases, raising the prospect of the Federal Reserve ending its quantitative easing plan earlier than expected.
Euro
The euro bounced between central banks’ updates from both the US and UK, jumping to 15-month highs against the British pound after the Bank of England appeared to be edging closer to even looser monetary policy. But the single currency slipped to one-month lows against the US dollar and may extend that decline unless PMI surveys covering the euro area’s manufacturing and services industries support claims that the region is over the worst of its latest economic recession.