The pound continues to trade just off five-year highs against the US dollar, while achieving levels near one year highs against the euro. The contrast between the policy outlooks for the Bank of England and the European Central Bank helped to drive the currencies in opposite directions with the euro being the primary loser and sterling taking gains. Momentum behind sterling’s gains could grow with the release of UK trade figures and output data. Output figures last month jump, but are forecast to see a small decline in this month’s release. Any upside surprise to the data could bolster sterling. Further trade figures showed the deficit narrowing last month on falling imports and exports. The data will be for the month of March, when sterling was not as strong, which could help exports in this month’s release.

US dollar

The US dollar was the primary benefactor of the forward guidance from the ECB. The dollar rallied and was given positive momentum by improved jobless claim data. The second day of testimony from the head of the US central bank did not reveal anything new, but continued dovishness on the housing outlook was noted.

Euro

The days of ‘no pre-commitments’ from the Central Bank have passed, said the head of the European Central Bank. His reference was to forward guidance used by most major central banks as a way to influence market behaviour and the guidance was quite precise. Policy makers have determined that forgoing any surprises between now and June, they are ready to take some form of policy action at next month’s meeting. So while the euro rose to three-year highs against the dollar, when no change in policy was announced, the turnaround on this forward guidance policy statement was equally as abrupt with the single currency ultimately losing over one per cent on the dollar.

Japanese yen

The Japanese yen has seen a rather lacklustre session with equity markets mixed. Asian investors were slightly rattled when Chinese consumer inflation figures were released below forecast at 1.8 per cent. Producer prices fell for the 26th consecutive month. Additionally, investors are digesting the impact of a referendum in the Ukraine this weekend, as pro-Russian separatists defy Putin’s call for postponing the vote.

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