Despite poor French economic data the euro opens is at one-month highs against the British pound and is continuing to find year-end support from European bank’s bolstering their books ahead of the European Central Bank stress tests next year. However, eurozone inflation data could unsettle the single currency ahead of the critical US monetary policy announcement. The Swedish krona and Indian rupee could see some sharp swings with central banks in both Sweden and India expected to make changes to interest rates this week, perhaps making preparations ahead of a change in the Federal Reserve’s position on quantitative easing. The British pound made a mixed start to the week, hitting new five-year highs against the yen but dropping to one-month lows against the euro and could see more movement today following UK inflation data.

Sterling

The British pound made a wide-ranging start to the week, hitting new five-year highs against the yen, holding above a two-week low against the US dollar, but falling to a one-month low against the euro. The theme at the moment appears to be profit-taking, with investors hesitant to take on more of the British currency ahead of the Federal Reserve’s monetary policy decision. Traders will study data on UK inflation for November and CBI’s industrial orders survey for December, with both measures not expected to show much change month-on-month.

US dollar

The US dollar was little changed with traders perhaps nervous about taking on big bets ahead of the critical US monetary policy announcement. However, the US currency may strengthen if data on US inflation data suggests that economic conditions now warrant less monetary easing from the Federal Reserve, with analysts expecting to see consumer prices increase.

Euro

The euro opens at one-month highs against the British pound and is continuing to find year-end support from European bank’s bolstering their books ahead of the European Central Bank stress tests next year. However, fundamentals for the euro area remain weak and final inflation reading is expected to confirm consumer prices in the eurozone rose just 0.9 per cent (y/y) in November, a full percentage point below the ECB’s “just below two per cent goal”.

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