Volatility in the Scandinavian currencies is likely to continue given their exposure to eurozone risks and China’s economy. The US dollar remains under pressure after last week’s dovish assessment of the US economy by Janet Yellen, the expected next Federal Reserve chair, while the yen is under broad pressure ahead of the Bank of Japan policy announcement. Selling of the euro remains another likely theme after one member of the European Central Bank entertained the idea of quantitative easing for the eurozone.
Sterling
The British pound is starting to emerge as the preferred major currency and could add to its gains, with few major UK event risks on this week’s economic calendar standing in the UK currency’s way.
Minutes from the Bank of England’s November policy meeting will be published this week, but the notes will probably confirm all members of the Monetary Policy Committee feel more confident in the UK’s faster-than-expected economic recovery. Sterling is up sharply against the US dollar and Japanese yen, while charts suggest a return to a nine-month high against the euro is possible over the coming sessions.
Euro
The euro is looking a little more balanced ahead of trading this week, benefiting from a weaker US dollar, while traders also sell the Japanese yen ahead of the Bank of Japan’s policy announcement on Thursday. However, the single currency is trading just one cent away from January 2013 lows against the British pound after last week’s worrying eurozone GDP data highlighted the risk of the European Central Bank loosening its monetary policy even further.
Earlier this month, the euro sank after the ECB cut its main rate to a record low 0.25 per cent and said that additional monetary easing may be forthcoming amid very low inflation. To further compound those concerns, one member of the ECB said last week that central bankers in Europe could open up some form of quantitative easing in order to support the region’s difficult economic recovery.
US dollar
The US dollar has dropped to a one-week low against a basket of currencies and could fall further this week if minutes from the Federal Reserve’s earlier policy meeting further indicate to investors that the Fed will not start reducing its stimulus measures until a few months into 2014.
Data tomorrow is also expected to show weak US consumer demand and low inflation; indicators consistent with the view that central bankers will continue to devalue the US currency through asset purchases for several more months.