The British pound and euro advanced further against the US dollar, with US dollar bulls retreating ahead of data that is likely to underline concerns that markets may have pushed expectations of tighter US monetary policy too far too soon.
The greenback edged towards one-month lows against a basket of currencies as traders believe that weak US retail sales figures will highlight the negative impact of uncertain US fiscal policy, and increase the possibility of the Federal Reserve pursuing its long-term monetary stimulus agenda.
The euro made a slow start in front of eurozone industrial output data, but may find its downside protected by meetings in Europe between finance ministers. The eurozone could agree to loosen bailout conditions for countries such as Portugal, and following the Cypriot crisis, help restore confidence the region’s ability to hold down the debt crisis.
Sterling
Sterling reached a seven-week high against the US dollar and rose against the yen and may continue to press forward should US economic data increase concerns amongst traders that they may have overdone expectations of tighter US monetary policy. However, with investors also concerned that minutes may underpin worries about looser Bank of England monetary policy, sterling’s ability to move higher will be limited and the chances of the pound slipping on profit-taking high. The UK central bank’s dovish policy outlook continues to hurt the pound against currencies offering a much higher yield.
US dollar
The greenback has been under pressure despite somewhat hawkish Federal Reserve meeting minutes. While not dismissing Federal Reserve notes completely, investors have been growing more concerned about US monetary policy following poor US employment data, worried they may have pushed expectations of the Federal Reserve winding down its monetary easing strategy too far too soon. According to most estimates, US retail sales failed to grow in March after rising by 1.1 per cent month-on-month in February.
Euro
Traders kept a close hand on the euro, bidding the currency to 1½-month highs against the US dollar in front of eurozone and EU meetings in which officials are expected to lay down an easier austerity path for countries such as Portugal amid signs that recession in the peripheral euro area economies is deepening. Finance ministers will discuss the option of relaxing bailout conditions for Ireland and Portugal as they attempt re-establish confidence that the worst of the sovereign debt crisis is over.