German industrial orders data should underline a more vulnerable euro going forward after the European Central Bank also said that it may consider charging banks to park money in an effort to stimulate the eurozone economy. President Mario Draghi repeated the threat of further policy action, which is weighing on the euro.
Investors have taken up a more encouraging position on the sterling ahead of Bank of England monetary policy announcement, with the pound hovering near multi-month highs against both the euro and US dollar. The pound struggled after the latest US jobs data sent the US dollar sharply higher.
The US dollar rallied late after a surprise drop in US unemployment calmed uncertainties about the Federal Reserve’s next move on its asset purchase programme. Forecasts suggest German industrial figures over the comings days should undermine the euro, while traders will also eye British manufacturing data.
Sterling
Better-than-expected UK PMI surveys should offer the pound support in the short-term data that should see the Bank of England keep the handbrake applied on monetary policy. The BoE is expected to hold its main policy rate at 0.5 per cent and the size of its asset purchase plan at £375 billion. However, the overall condition of the British economy still remains doubtful, and the sterling would be at risk of returning to lower ground if UK industrial and manufacturing figures miss their mark.
US dollar
Better-than-expected US labour market data allayed fears that the US economy was losing steam quickly; a big relief for investors worried the Federal Reserve may seriously consider an even larger stimulus programme to support jobs growth. Non-farm payrolls data showed hiring jumped more than expected in April and in the previous month, pulling the overall unemployment rate down to 7.5 per cent, the lowest since December 2008.
Euro
The risk of a more dovish European Central Bank means the euro will probably trade more sensitively to eurozone economic data than in recent months, starting with a report on German industrial orders that will probably show declining demand for the country’s products. Recognising that economic conditions had worsened, the ECB cut interest rates to a record low and said that it is considering charging banks to deposit money. ECB head Mario Draghi kept the euro on vulnerable ground by repeating his warning that more policy action may be required.