Sterling climbed to near one-year highs against the euro after robust UK retail sales data. Markets will be closely monitoring data on UK unemployment and the Bank of England’s meeting minutes for clues about future interest rates. The Canadian dollar is trading near multi-year lows and more losses may develop should the Bank of Canada sound more concerned about the Canadian economy in its policy decision. The euro is also under broad pressure, trading at seven-week lows against the US dollar after eurozone inflation data did little to dampen speculation about looser European Central Bank policy. The US dollar rose broadly, reaching two-month peaks against a currency basket after economic data suggested that the US economic recovery was strong enough for the Federal Reserve to continuing tapering.
Sterling
Market participants will be watching for the UK’s latest unemployment data to see how much closer the jobless rate is to the Bank of England’s 7 per cent threshold, which is the point at which it says it will consider an interest rate hike. However, the BoE will also release minutes from its earlier policy meeting on the same day. Any hints from the Monetary Policy Committee about the option of lowering the unemployment threshold, or reducing market expectations about higher rates, could be real a problem for the British pound.
US dollar
The US dollar rose broadly, reaching two-month peaks against a currency basket and seven-week highs against the euro after US economic data suggested that the economic recovery was strong enough for the Federal Reserve to continue tapering its monthly stimulus programme over the coming months. US data on housing, manufacturing and consumer sentiment mostly missed expectations but the numbers were largely consistent with an economy making progress and landed before a three-day weekend in the US.
Euro
The euro is under broad pressure and is facing a difficult short-term outlook after eurozone inflation data reminded investors of the risk of further European Central bank action. With the US dollar in demand on prospects of further stimulus tapering in the US, news on consumer prices from the euro area helped push the euro down to a seven-week low against the US dollar. The euro fell sharply against the pound towards a one-year low after strong UK data highlighted the divergence between growth prospects in the UK compared to many eurozone economies.