The euro has fallen to a two-month low against its US rival after last week’s

eurozone inflation number caused investors to ramp up bets of further European Central Bank action. The ECB will make its latest rate decision and the possibility of looser monetary policy could see more traders turn bearish on the euro, leading to further price swings. The sterling has slumped to a two-week low against the US dollar and may slip further if upcoming UK data on manufacturing , services and industrial output miss market expectations. Improving economic data helped the US dollar strengthen broadly last week and strong US payrolls data may allow the greenback to extend its recent gains into February.

Sterling

The sterling opens at a two-week low against the US dollar and may slip further if upcoming UK data on services, manufacturing and industrial output miss market expectations. The Bank of England will announce its latest policy decision after BoE Governor Mark Carney told investors last week not to expect a sooner interest rate hike. This week’s ECB announcement could be the one to watch though, with expectations of further stimulus for the eurozone economy a more likely scenario and a reason to expect some big swings for the euro. Carney may be forced to adjust the bank’s forward guidance to ensure that rate hike expectations do not slow Britain’s economic recovery.

Euro

The euro fell sharply last week after weaker-than-expected eurozone inflation numbers caused investors to ramp up bets of further ECB action this week. The ECB will make its February interest rate announcement on Thursday and the possibility of looser monetary policy is a reason why more traders could turn more bearish on the euro in the days ahead. Data last week showed inflation across the 18-member economy fell to 0.7 per cent (y/y) in January instead of climbing to 0.9 per cent as expected.

US dollar

The US dollar finished January on a strong footing at one-week highs against a currency basket and two-month peaks against the euro lifted by signs of an improving US economy, which allowed the Federal Reserve to cut back on stimulus for the second time in as many meetings. The ECB announcement may be key while investors will examine a number of important US economic reports on manufacturing and services ahead of US unemployment data.

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