As expected, Friday’s speech by the Federal Reserve’s Ben Bernanke caused significant short-term volatility as he outlined his concerns for the US economy. The dollar consequently came under significant selling pressure; however, traders are likely to turn towards this Friday’s non-farm payroll report for further signals.News from Europe continues to be mixed with speculation over ECB president Mario Draghi’s bond market plan dominating the single currency’s moves.

Sterling

Sterling begins September on the front foot against the US dollar and is also holding steady versus the euro. Last week, the only economic data of significance was the Bank of England’s consumer credit report which showed a steep decline from the prior month. Mortgage lending and approvals data did pick up but only after a sharp dip seen last month. This week promises to be much busier with data due out on all three key sectors of the economy: manufacturing, construction and the services sector. The Bank of England is also due to meet this week on monetary policy although the MPC is not expected to alter its asset purchase programme or interest rates.

US dollar

With further quantitative easing a possibility, the greenback came under heavy selling pressure last week, losing ground versus the euro as well as sterling. Even though Ben Bernanke did not specifically state that quantitative easing three is imminent, his speech at the Jackson Hole economic forum certainly left the door open for further action. Economic data continues to paint a mixed picture of the economy: regional manufacturing is slowing but consumer sentiment is strengthening.

Euro

The single currency benefitted last week from the view that the central bank may finally be prepared to act decisively on the debt crisis. Speculation that such a move is imminent was only compounded by the news that the Bank chief, Mario Draghi, opted to stay at home rather than go to the Jackson Hole meeting of central bankers, citing a heavy workload. Therefore market attention is focused on Thursday’s European Central Bank policy announcement, with the bank expected to make an announcement on a widely anticipated bond purchasing programme. Should the central bank fail to deliver on a rate cut and/or bond-purchasing programme, there could be great disappointment in markets, which would weigh on the euro.

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