Friday’s strong US employment data added to bets the Federal Reserve will consider an early exit from monetary easing, and should markets revisit the issue of Italy’s inconclusive election results in the days ahead, stimulating safe haven demand, the US currency could easily set new record highs in the very near-term. Italy suffered a new ratings downgrade and the nation will also publish revised GDP data covering the fourth quarter. A lack of big-hitting economic figures from Germany could see the focus for the euro move back to the Italian election risk with the euro hovering above three-month lows against the US dollar. The British pound hit another new multi-year low against the US while the Japanese yen fell to new three-year low versus its US rival and is another currency entrenched in bearish sentiment amid expectations Haruhiko Kuroda will soon take charge at the Bank of Japan and immediately bring into play the central bank’s unlimited bond purchases programme which is currently due to start in 2014.

Sterling

The British pound climbed following the Bank of England’s latest policy decision but failed to pull away from earlier one-and-a-half-year lows against a currency basket, underscoring the pound’s bearish outlook with investors still worried about the prospects of new monetary policy action. Instead, the pound notched fresh multi-year lows after robust US unemployment data sent the US dollar soaring across the board, erasing the pound’s earlier rise and many traders are eyeing further losses this week.

US dollar

Increasing optimism about the strength of the US economy following the latest non-farm payrolls data helped the US dollar surge to seven-month highs against a currency basket last week. A continued display of encouraging US data would highlight the economy’s healthier position compared to Europe and Britain, and perhaps lift the greenback to new highs in the near-term.

Euro

A fresh ratings downgrade for Italy, and another look at the country’s fourth quarter GDP data, could bring the focus for the euro back to eurozone government debt risks in the days ahead. Thursday will also mark the start of the latest European Council Meeting, the first time eurozone leaders will come together since Italy’s inconclusive election results raised serious question marks about the region’s crisis-management. The euro could also be vulnerable to forthcoming numbers on eurozone industrial production and revised inflation figures.

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