Federal Reserve Chairman Ben Bernanke spent another session keeping market volatility restricted and the US dollar trading flat by playing down expectations of an imminent reduction in the Fed’s monthly bond-buying programme. Instead, focus in North America shifted to Detroit, which became the largest-ever US city to file for bankruptcy. In currencies, positive UK retail sales data allowed the pound to hold gains that followed less dovish than expected Bank of England minutes. Still, the outlook for the British pound remains uncertain before next week’s UK GDP data and the BoE’s Inflation Report in August. The euro rose, supported by news from Greece and expect-ations that next week’s data will show further signs of a rebound in the eurozone economy. Investors dumped the yen before weekend elections in Japan that are likely to open the third door to Prime Minster Shinzo Abe’s so-called “Abenomics” plan. The two doors opened so far have led to aggressive monetary easing and record lows for the yen.

Sterling

Positive UK retail sales encouraged investors to hold sterling positions, allowing the currency to build a platform above recent lows and hold on to gains that followed news from the Bank of England earlier this week. The pound jumped close to two-week highs against the US dollar after minutes from the BoE’s July meeting revealed policymakers voted unanimously against additional quantitative easing.

US dollar

US dollar trading was relatively flat despite a second testimony from Ben Bernanke in Washington outlining the outlook for the US economy and the Federal Reserve’s monetary policy options. The overall message from the Fed chief this week has been that the bank’s quantitative easing programme is not on a “preset” path and may change both ways depending on a number of factors, including inflation as well as unemployment.

Japan yen

The yen slumped to two-month lows against the pound in front of weekend elections in Japan that should open the door for Prime Minister Shinzo Abe to force through big structural reforms to support policies of aggressive monetary easing.

Euro

The euro maintained its recent stronger levels against its major rivals after a meeting among officials in Greece offered markets some encouragement about the country’s financial rehabilitation ahead of data next week that may show Europe’s recession easing. The euro could move higher next week with analysts expecting Germany’s IFO business survey and the eurozone’s latest PMI data to show signs of a rebound.

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