Speculation about the US Federal Reserve starting to reduce its monetary stimulus programme in the coming months continues to be a hot topic, a discussion that is likely to intensify following the latest numbers on the US labour market. The US dollar, having risen sharply in recent weeks, could suffer a heavy correction if the data falls on the disappointing side of market expectations. The ECB’s policy decision will be closely watched and the euro could also be in danger of collapse if President Mario Draghi delivers more monetary stimulus after cutting interest rates to a record all-time low. The Bank of England will be in action in what will be Mervyn King’s last meeting as Governor. However, no policy adjustment is expected leaving the pound to probably trade in step with upcoming PMI surveys on Britain’s manufacturing and services industries.
Sterling
The pound ended on a slightly positive footing, rising close to two-week highs against the US dollar after encouraging UK house price and consumer confidence data eased concerns about the British economy. There could be further upside or rebound potential ahead for sterling should PMI data show further expansion in Britain’s services sector and the Bank of England makes no changes to its policy.
US dollar
The US dollar is likely to experience a serious examination in the coming days ahead of US non-farm payrolls and unemployment figures, as investors look to clarify just how close the Federal Reserve is to winding down its monetary stimulus support for the US economy. With the greenback already slipping, disappointing labour market figures could trigger a more aggressive move lower.
Euro
The European Central Bank will either encourage investors to pump money into the euro area with the promise of an economic recovery, or discourage them with stimulus talk as President Mario Draghi prepares to announce the bank’s June monetary policy decision. Furthermore, should Draghi follow through on previous warnings about using negative interest rates to boost the economy, the euro could face a very hostile reaction from investors. Worrying eurozone economic fundamentals mattered little to investors who pushed the single currency up to three-week highs against the US dollar, taking profit on the greenback’s surge in recent weeks.