The US dollar was helped lower by better-than-expected economic data released in the eurozone as well as a string of FX interventions. Emerging market currencies fell with some central banks, such as Turkey, trying to defend their currencies by selling US dollar. A reported $2 billion were sold in defence of the lira. Argentina’s central bank gave up trying to defend its currency leading to a 16 per cent collapse. The South African, Russian, Brazilian and Mexican currencies were also caught up in the sell-off. Two factors are behind the decline in emerging market currencies. Firstly, concerns over the shadow banking system in China have led to risk off sentiment and, secondly, speculation ahead of next week’s FOMC meeting is creating uncertainty. The Federal Reserve is expected to continue to taper its QE programme, prompting an unwinding of carry trade positions where the dollar was used as a funding currency. Economic data released in the eurozone showed economic activity in the single currency area improving at the start of this year, whereas data released in the US was below forecast.

Sterling

The pound’s position is becoming increasingly uncertain despite some strong gains after the Bank of England Governor, Mark Carney, reiterated his reluctance to consider an interest rate hike any time soon. A fall towards the seven per cent unemployment target rate is occurring at a much greater pace than expected and has therefore left significant question marks around the integrity of Carney’s forward guidance policy should he fail to act if this level is reached and no interest rate increase is introduced.

US dollar

The greenback continues to suffer from worldwide selling pressure with speculation mounting ahead of a FOMC meeting that no change will be made to the Federal Reserve’s current quantitative easing plans. A string of positive eurozone data encouraged the US dollar’s demise.

Euro

Economic data released in the eurozone showed economic activity in the single currency area improving at the start of this year. Positive service data from France, Germany and the eurozone as a whole allowed the euro to fight back following recent selling pressure. Next week is expected to be a quiet week for the single currency with German unemployment one of the few notable releases for investors to look out for.

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