The euro is trading near two-and-a-half-month lows against the US dollar ahead of the critical policy announcement amid speculation the European Central Bank may take more unprecedented action and talk down the euro. Another below-forecast PMI survey weighed on sterling, forcing the UK currency down to fresh seven-week lows against the US dollar with investors also cautious about holding on to the pound before the Bank of England interest rate decision and the bank’s Inflation Report next week. The US dollar remains in a strong position against both the British pound and euro ahead of the central bank announcements from both the UK and eurozone.

Sterling

Another below-forecast report hit sterling, forcing the UK currency down to fresh seven-week lows against the US dollar with investors also cautious about holding on to the pound before the Bank of England interest rate decision and the bank’s Inflation Report. The majority of experts do not expect any change to UK monetary policy from the BoE. Any change should be dovish and a negative for sterling. Meanwhile, the BoE has already started to express its concerns about a stronger pound which hurts exports and brings down inflation faster. Market participants sold sterling after Britain’s January services PMI survey slipped from 58.8 in December to 58.3.

US dollar

The US dollar remains in a strong position against both the British pound and euro ahead of the central bank announcements from both the UK and eurozone with investors expecting central bankers in Europe to push back in a dovish direction as the Federal Reserve moves forward with its tapering. The ISM index showed growth in the US services industry was stronger than expected in January but a separate survey from ADP on jobs growth missed forecasts which have weighed on the US dollar.

Euro

The euro is trading near two-and-a-half-month lows against the US dollar ahead of the critical policy announcement amid speculation that much weaker inflation in the euro area will force the European Central Bank to take more unprecedented action. Inflation is hovering at 0.7 per cent and some in the market are concerned that the ECB may just open the door towards a new type of liquidity programme to get more money through banks into the real economy. Although President Mario Draghi may not announce another rate cut, he may reinforce the possibility of more aggressive action in his press conference

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