The US dollar has weakened to two-week lows against both the euro and a currency basket as investors backpedal ahead of the testimony from Janet Yellen, the Federal Reserve’s new Chairman. The euro has climbed to a two-week high on a trade-weighted basis on the back of four consecutive session gains after the European Central Bank’s policy announcement surprised many investors. Adding to the single currency’s upside is uncertainty surrounding both the US dollar and sterling heading into important policy announcements from both the Federal Reserve and Bank of England.

Sterling

Consumer spending in the UK increased in January at its fastest annual rate in over three years according to data from the British Retail Consortium but sterling remains under pressure ahead of the Bank of England announcement. British retail sales grew 3.9 per cent (y/y) last month with economists pointing towards rising house prices and better employment prospects as factors behind stronger consumer demand. Nevertheless, the pound is currently trading within striking distance of its lowest levels since December 31st against the euro.

US dollar

The US dollar has weakened to two-week lows against both the euro and a currency basket and slipped to one-week troughs against sterling as investors backpedal ahead of the statement and testimony from the Federal Reserve’s new Chairman, Janet Yellen. The dollar’s losses suggest traders are worried about Yellen using two consecutive months of weak jobs growth in the US, as well as turmoil in emerging markets, to deliver a more dovish assessment. Yellen will spend two of the next three days testifying in front of US lawmakers in the wake of unexpectedly poor US manufacturing and employment data whilst the Federal Reserve has reduced its monetary stimulus two months in a row

Euro

The euro has climbed to a two-week high on a trade-weighted basis on the back of four consecutive session gains after the European Central Bank took a more cautious approach than some investors had positioned for. Many investors had expected the ECB to cut interest rates or at least signal that further monetary easing may be imminent with inflation levels so low across the eurozone. Adding to the single currency’s upside is uncertainty surrounding both the US dollar and sterling heading into important policy announcements from both the Federal Reserve and Bank of England.