Having climbed to fresh one-year and two-year highs against the euro and US dollar respectively, the pound is currently trading sharply lower as comments from Governor Mark Carney suggest the Bank of England may soon take action.

The euro has made a positive start after solid German IFO sentiment data but is likely to experience some sharp swings of its own as a result of UK GDP data news from the US. Should the euro come out of the Federal Reserve’s announcement under pressure against the US dollar, it may suffer further losses if key eurozone unemployment and inflation reports keep alive the chances of more European Central Bank easing.

Sterling

The pound has fallen by over 1.5 per cent against the euro after reaching fresh one-year highs against the euro after Carney played down the prospect of raising rates in a number of interviews over the past several days. The Governor of the BoE also said that the sterling’s appreciation will hurt exporters. The UK currency had surged across the board and to a new two-year high against the US dollar after Britain’s latest unemployment data showed a drop from 7.4 per cent to 7.1per cent, the lowest in almost five years. At seven per cent, the BoE has said it will consider a rate hike.

US dollar

Markets will study US house price and consumer confidence data ahead of the Federal Reserve monetary policy announcement, with chances of another taper already helping to cause significant volatility in emerging markets and equities. Currently, the US dollar is finding support from both safe haven buying as a result of large uncertainties across the developing world as well as demand in front of the Federal Reserve’s decision. Several economists expect the Federal Reserve to cut its monthly bond purchases by another $10bn having already reduced purchases by the same amount in December to a total of $75bn.

Euro

The euro could make a positive start to trading if German IFO business sentiment data shows another rise in confidence while markets are also anticipating better eurozone economic sentiment numbers. Should the euro come out of the Federal Reserve’s announcement under pressure against the US dollar, it may suffer further losses if eurozone unemployment and inflation reports keep alive the chances of more ECB easing.

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