The US dollar was hit by a fresh wave of selling amid speculation the Federal Reserve will look to hammer home its dovish message at its policy meeting next week.
The British pound had found little traction earlier and fell in some cases despite GDP data showing the pace of growth in the British economy doubled over the second quarter. Demand for sterling was limited amid uncertainty ahead of next week’s Bank of England announcement and the chances of more monetary activism from Governor Mark Carney.
The Swiss franc and Japanese yen provided investors with the usual cover from the US dollar drop, with the franc climbing to a four-week high against its US rival. German Ifo survey beat forecasts, climbing for the third straight month, which continued to support flows into the euro. However, the ECB could leave the door open to additional monetary stimulus next week, with policymakers perhaps also noticing the euro’s export-harming strength.
Sterling
The British economy grew by 0.6 per cent over the second quarter, twice the pace of Q1, yet data was not enough to ease concerns about UK monetary policy ahead of next week’s Bank of England announcement.
However, monetary policy signals dramatically swung back in favour of the British pound.
Sterling surged to four-week highs amid speculation the US Federal Reserve is considering altering its forward guidance over policy, in which it currently ties the outlook for interest rates to levels of unemployment and inflation.
US dollar
The near-term outlook for the US dollar is suddenly looking more bearish again following the latest developments regarding US monetary policy ahead of the Federal Reserve’s monetary policy announcement on July 31.
Media reports are implying that chairman Ben Bernanke could announce a new forward guidance strategy to contain market expectations, news that caught investors by surprise.
The US dollar sank to new one-month lows across the board amid fears the Fed will want to promote its ultra-dovish monetary policy position next week.
Euro
Against a basket of currencies, the euro is now trading close to February highs following economic data suggesting the eurozone economy is on the verge of a turnaround, and may exit recession over the coming months.
Adding to these hopes, Germany’s influential Ifo survey of business sentiment rose for a third time in as many months in June.
The data kept the euro hovering near recent highs by damping worries ahead of next week’s European Central Bank meeting.