Sterling sank to one-month lows against the US dollar and will face a testing examination as investors anticipate Britain’s latest services data as well as Mark Carney’s first meeting as Bank of England Governor. Although consensus is for no change in monetary policy just yet, surprise UK GDP revisions underlined expectations for Carney to steer the Monetary Policy Committee towards more monetary easing. Monetary policy outlooks should be the dominant theme as traders also look forward to the European Central Bank’s latest decision and press conference. Euro area data on inflation and unemployment should raise expectations ahead of President Mario Draghi’s monetary policy assessment following the BoE’s decision. US non-farm payrolls data should do all the talking about the Federal Reserve’s monetary policy outlook, with the greenback flying near one-month highs against a currency basket amid expectations that Chairman Ben Bernanke will soon rein in the Federal Reserve’s asset buying programme.

Sterling

The British pound eventually sank to one-month lows against the US dollar after surprise UK GDP revisions reminded markets of the challenges facing the British economy and the Bank of England’s new Governor, Mark Carney. Unexpectedly, UK first quarter growth on an annual basis was downgraded from 0.6 per cent to 0.3 per cent. Uncertainty over the policies the new Governor might favour to support economic growth is likely to keep sterling under pressure over the coming weeks.

US dollar

The US dollar is hovering near one-month highs against a basket of currencies following back-to-back weekly gains, as favourable US fundamentals underpin expectations of a reduction in stimulus from the Federal Reserve. However, the US dollar’s bullish run will face a huge test from the monthly US non-farm payrolls and unemployment reports. Positive readings would strengthen the case for the Federal Reserve to taper stimulus this year and support the greenback.

Euro

The euro is holding above three-week lows against the US dollar in front of key eurozone inflation and unemployment data which may underline the need for more monetary support for euro area economies. Divergent paths on economic growth and central bank policy in Europe compared to the US pressured the euro, compounded further by dovish central bank comments ahead of European Central Bank policy announcement. The ECB’s policy decision and subsequent press conference should help shape the near-term prospects for the euro.

Sign up to our free newsletters

Get the best updates straight to your inbox:
Please select at least one mailing list.

You can unsubscribe at any time by clicking the link in the footer of our emails. We use Mailchimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to Mailchimp for processing.