Daily currency report

The euro will be under the spotlight as government debt risks and concerns about the health of the eurozone economy appear to be closing in on the single currency ahead of the European Central Bank meeting. The euro continues to hover near three-month lows against the US dollar and is dangerously close to psychologically important trading levels after a meeting between eurozone leaders failed to reassure investors about a bailout for Cyprus and Italy’s political deadlock. The British pound is surprisingly moving north following an impressive retail sales report and could make further progress should a survey on Britain’s dominant services industry temper fears about a triple-dip economic recession. Stimulus expectations weighed on the US dollar after Federal Reserve vice chairman Janet Yellen said aggressive monetary easing was necessary in the US with the economic recovery still in a fragile condition.

Sterling

The British pound is making a strong start, boosted by a record jump in UK retail sales data and a reminder for investors that the Federal Reserve is still fully committed to open-ended stimulus, which weighed on the US dollar. The British Retail Consortium said consumer spending in February grew at the fastest rate in almost two years, easing fears the UK economy was tipping towards another recession. Sterling may extend its small but encouraging advance if data on Britain’s vital services sector encourages investors not to expect the Bank of England to relaunch quantitative easing at its meeting.

US dollar

Federal Reserve vice chairman Janet Yellen sent US equity markets to record highs and the US dollar lower after damping speculation that the US central bank was heading towards an exit from its long-term stimulus agenda. In a speech, Yellen said aggressive monetary easing was necessary with the US economic recovery still in a fragile condition, suggesting the Federal Reserve will maintain its monthly asset purchases of $85 billion throughout 2013.

Euro

The euro may fall to three-month lows against the US dollar in the coming sessions after the latest meeting between eurozone leaders failed to reassure investors about the region’s debt prospects ahead of the European Central Bank meeting which may bring about a more dovish monetary policy outlook. Italian borrowing costs moved back towards this year’s highs before a report that is expected to confirm Italy’s services industry shrank in February for the 20th month in a row.