The US dollar spent another five days under pressure last week after more weaker-than-expected US economic data stood in contrast to positive reports from the eurozone and signs of tighter monetary policy to come in the UK. The greenback is trading near three-week lows against the euro and six-week troughs versus a currency basket ahead of this week when the Federal Reserve will publish minutes from its January meeting. Should the notes suggest that US policymakers remain confident about the US economic outlook and are set to continue stimulus tapering then the US dollar may bounce back.

Investors may extend the euro’s gains this week following the forecast-beating fourth quarter GDP data if the German ZEW index bolsters optimism about European growth. However, key for the euro this week may be the euro area services and manufacturing PMI surveys. No progress in those industries could lead to profit-taking on the single currency’s rise against the US dollar and more losses against the British pound.

Euro area finance ministers will gather this week amid talk about Germany standing in the way of fresh aid to Greece which is a story that could gather pace over the coming weeks. The Bank of Japan will announce its latest interest rate decision tonight which should impact trading levels ahead of the European open.

Sterling

Cable opens this morning near November 2009 peaks, touching 1.6822 overnight with the BoE currently leading the race towards higher rates according to speculation. Today’s UK inflation data, if weak, could interrupt sterling gains. Tomorrow’s BoE meeting minutes and UK unemployment data are bigger event risks followed by Friday’s retail sales report.

US dollar

The US dollar could rebound tomorrow if the Fed’s January meeting minutes point directly towards ongoing stimulus tapering and the shift towards tighter monetary policy. Thursday’s Jan US CPI data, if low, should be a dovish release and could weigh on the US dollar. There will be US housing data and Federal Reserve speakers throughout the week to influence rates.

Euro

The euro opens near three-week highs, EUR/USD rose to 1.3723 overnight after slumping to 1.3561 last week. Currently some talk about Germany not happy about fresh aid to Greece while uncertainty about the Italian government remains high. Today’s German ZEW will be the focus and expectations are positive. On Thursday flash eurozone manufacturing and services PMI data likely to show more progress.

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