British exporters with overseas funds to bring home, grew more anxious after the UK pound powered to a 10-month high against a broad currency basket. The euro continued to face pressure after weak PMI surveys fuelled more talk of further European Central Bank policy action. However, President Mario Draghi delivered a less dovish speech than markets were expecting and surprisingly strong German IFO data supported the single currency. The yen has continued to fall apart amid concerns that a stuttering fiscal programme in Tokyo may force the Bank of Japan to do more than it already is with yen-devaluing bond buying. A weaker yen gave the US dollar a four-month high to lean against but the US currency is still under pressure against a rising pound after US manufacturing data gave the US stimulus taper another nudge in the dovish direction.

Sterling

Robust growth at Britain’s factories this month helped keep the British pound’s fundamental story strong relative to the other regions, powering sterling to 10-month highs against a currency basket as traders find the pound very difficult to short at the moment. Meanwhile, the Japanese yen, euro and US dollar have all come under pressure this week, creating some panic amongst British exporters looking to bring home overseas funds. Sterling hit multi-year highs against the yen and Australian dollar and is trading above key psychological levels against both the euro and US dollar.

US dollar

The US stimulus taper story, which now seems to shift almost daily, moved again after weaker-than-forecast regional manufacturing data suggested to investors that the US economy is still half asleep following the recent US government shutdown. The US dollar is at its lowest in almost a month against sterling after the US Philadelphia Fed survey on manufacturing dropped in November to its lowest since May.

Euro

Euro/dollar slipped to a one-week low and the single currency is trading near a 10-month low against the pound after eurozone developments. However, the euro may rebound if German IFO index sends out a positive message. Eurozone PMI surveys were mixed, showing some signs of encouragement but more signs of concern with both the French manufacturing and services industries shrinking in November. The data weighed on the euro, feeding expectations that the European Central Bank’s record low rates won’t be enough, and that President Mario Draghi could launch a more aggressive monetary stimulus programme next month. However, talk of the ECB using a worrying negative interest rate tactic was played down, after Draghi, speaking in Germany, said little to suggest that another big move on policy was imminent.

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