The euro will face a number of challenges this week as investors eye monetary policy-shaping economic data before next week’s European Central Bank meeting. Over the weekend, President Mario Draghi said the ECB’s March policy meeting could be critical in determining whether the central bank will provide additional stimulus. A run of soft UK economic data led the pound to one-week lows against both the euro and US dollar last week, although sentiment towards sterling still remains strong overall after the Bank of England’s hawkish February Inflation Report. Talk of future rate hikes was enough to strengthen demand for sterling before last week’s below-forecast UK data on inflation, unemployment and retail sales.
Sterling
A run of soft UK economic data led the pound to one-week lows against both the euro and US dollar last week although sentiment towards sterling still remains strong overall after the Bank of England’s hawkish February Inflation Report. The CBI’s monthly retail sales survey will be published followed by the revised fourth-quarter UK GDP report. Cable surged to a four-year high on February 17 after BoE governor Mark Carney raised Britain’s economic growth forecasts and said that when interest rates rise they will do so only gradually. Talk of future rate hikes was enough to strengthen demand for sterling before last week’s below-forecast UK data on inflation, unemployment and retail sales.
US dollar
The US dollar rebounded from year-to-date lows against a basket of currencies last week after the Federal Reserve’s January meeting minutes gave investors some unexpected hawkish signals. Markets will digest influential US data this week on consumer confidence and durable goods before Thursday’s speech from Federal Reserve’s chairman Janet Yellen. Last week’s Federal Reserve minutes kept intact expectations of ongoing stimulus tapering over the coming months whilst policymakers also debated the outlook for interest rates.
Euro
The euro is hovering close to six-week highs against the US dollar but will be at risk of profit-taking as investors eye a list of policy-shaping economic data before next week’s European Central Bank meeting. Final revisions to euro area inflation data for January will be released before flash inflation figures for February and the eurozone’s latest unemployment data. Inflation and unemployment numbers in recent months have kept the ECB under pressure to do more to support the region’s fragile economic recovery. German inflation data will also be a key consideration.