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Daily currency report

Overview

Widespread selling pressure on the British pound and the Japanese yen continued as markets remain anxious about next week’s UK budget update and a change of governor at the Bank of Japan. Sterling clocked another two-and-a-half-year low against the US dollar before the UK Chancellor’s budget on March 20, which analysts fear may squeeze the British economy with more austerity. The yen sank to new multi-year lows against both the US and Australian dollars amid fears the next BoJ governor will waste no time and make a move on delivering aggressive stimulus before the bank’s April monetary policy meeting. Increasing caution about Italy’s political problems was another factor bolstering demand for the US dollar as risk aversion and improving US economic data should keep the greenback trending positively this week.

Sterling

The British pound dipped to fresh two-and-a-half-year lows against the US dollar as investors continue making preparations ahead of next week’s budget update and before data that is forecast to show Britain’s manufacturing industry stood still in January. The overriding concern is that the Government is giving little indication that it will take its foot off austerity, which is hurting economic growth. At the same time, the Government has given plenty of indications that it will take a look at the Bank of England’s policy remit in next week’s budget.

US dollar

Traders cashed in on the US dollar’s surge in recent sessions to seven-month highs overall, which led to a correction lower, but the US currency is likely to remain underpinned by safe haven demand and solid US economic data. Investors worldwide remain cautious about Italy’s political outlook, which is supporting demand for the greenback ahead of data that is expected to show US consumer spending accelerated in February.

Euro

The euro traded close to a three-month low against the US dollar as traders continue to weigh the impact inconclusive elections results in Italy may have on government debt and economic growth in the euro area. The single currency looked fragile after ratings agency Fitch cut Italy’s credit score ahead of a report from Rome that confirmed the euro area’s third largest economy shrank by almost one per cent over the fourth quarter last year. The updates saw Italian borrowing costs rise and the numbers are increasing nervousness about the chances of another election as leading parties struggle to form a coalition government. Should market anxiety about Italy and its mountain of debt start to gather momentum, the euro could find itself heading lower.

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