Optimism ahead of ECB monetary policy meeting announcement has put the euro back on top against the US dollar, climbing back near two-month highs. The stronger single currency also weakened the British pound; although sterling is busy taking advantage of a vulnerable US dollar after already reaching three-and-a-half-month peaks.
The Bank of England will announce its monetary policy position for September but currency markets are likely to revolve around the ECB rate decision and accompanying press conference. There is a strong possibility that although the ECB may officially put forward its plan to ease the debt crisis, it could warn that Europe must first overcome several obstacles to get there, something that may not sit well with investors.
Sterling
The British pound surprisingly jumped to three-and-a-half-month highs against the US dollar but looks to be taking another step back against the euro after media reports improved hopes of fical relief ahead of the European Central Bank’s meeting. Traders excited by the prospect of the ECB unveiling new tactics to stem the debt crisis walked away from safe haven positions, which is weighing on the US dollar. The pound’s advance against its US counterpart could even pick up pace should the Bank of England meet predictions of no change in monetary policy after concluding its meeting.
US dollar
The US dollar dropped sharply and could be back in trouble after investors were given new reasons to believe the ECB may announce a detailed debt-fighting plan that is reducing demand for refuge currencies. Traders are also growing nervous about the US dollar in front of US unemployment data; other jobs reports due to be released are expected to show the economy may be cooling quickly.
Euro
The euro is making a fresh attempt at two-month highs against the US dollar after leaked information about what the ECB may announce restored belief that the debt crisis could ease in the months ahead. Sources close to the central bank said that the ECB is planning to buy unlimited amounts of government bonds to reduce overall borrowing rates across Europe. The move could go a long way towards rebuilding confidence in the euro, as well as meeting President Mario Draghi’s pledge to do “whatever it takes” to protect the eurozone.