Hopes of the US Federal Reserve releasing a third wave of quantitative easing on financial markets were dashed after chairman Ben Bernanke announced a less impressive form of monetary support. Traders had taken up more risky positions prior to a policy announcement, expecting the Federal Reserve to throw another liquidity blanket over a global economy in desperate need of support measures.

UK retail sales data will be another worry for local investors but heavy line-up of eurozone data is expected to command most of the markets attention. The euro is already heading lower after Germany reported another decline in its manufacturing sector, strengthening calls for the European Central Bank to take action as euro area debt troubles continue to smother economic activity.

Sterling

Investors are quickly losing interest in the pound after minutes from the Bank of England’s June 6-7 meeting revealed four out of the nine voting members had pushed for an immediate expansion of the central bank’s gilts purchasing scheme. Markets now believe that more BoE money-printing is almost a certainty at the group’s next policy meeting in July, even more so now after weak British unemployment figures and as Europe’s crisis continues to damage businesses confidence at an alarming rate.

US dollar

The US dollar appears set to recover recent lost ground against the pound, euro and other yield-heavy currencies after disappointing Federal Reserve announcement encouraged traders back into safe havens. Investors had initially sold the greenback on concerns the Federal Reserve may deliver a full-blown third round of quantitative easing in response to a slowing jobs market and stubbornly high unemployment.

Euro

With Greek and Spanish worries still simmering, market focus will centre on the eurozone economy. A long list of economic data releases together, are all expected to show the German economy slowing sharply; the wider eurozone in fast decline; and the chances of another rate cut from the European Central Bank growing.

Japanese yen

The Japanese yen has quickly moved to within range of one-month lows against the US dollar following the US Federal Reserve’s decision not to introduce more aggressive monetary easing. The prospect of a rush of cheaper dollars had pressed traders, who were looking for defensive currencies, to favour the yen.