The pound is back under the spotlight as investors await Britain’s retail sales data for January to gauge what part consumers are playing in the country’s strong economic recovery. Analysts widely expect sales to have dropped one per cent (m/m) in a generally volatile first month of the year.

The euro fell below an earlier six-week high against the US dollar after manufacturing and inflation data from France, the eurozone’s second largest economy, reminded investors of the risk of looser ECB monetary policy. The US dollar rallied after stronger US inflation data supported the Federal Reserve’s less accommodative policy outlook but the US currency later surrendered gains after another poor regional manufacturing report.

Sterling

Another lower-than-expected reading on Britain’s economy weakened on the pound, which hit a one-week bottom against the US dollar. A CBI survey showed a smaller-than-expected rise in a measure of UK factory growth in February. The report followed news of slower-than-expected inflation and higher-than-anticipated unemployment earlier this week. The softer run of UK data has offered a chance for UK exporters to secure a cheaper pound for the coming months.

US dollar

The US dollar saw a choppy trading session but ended the day largely flat after a poor regional manufacturing report from the US overshadowed better inflation data and slightly positive weekly jobless claims. Any hawkish comments from the Federal Reserve speakers could see the greenback finish the week on a stronger footing. Annual US consumer prices rose 1.6 per cent in January, which was in line with forecasts and up from a 1.5 per cent increase in December. Higher inflation will make the Federal Reserve’s move towards tighter monetary policy smoother and easier to forecast. The US dollar rallied after the inflation figures but the US currency later surrendered gains after another poor regional manufacturing report

Euro

A fresh reminder of the eurozone’s weak fundamental backdrop hit the euro and pulled it back from January highs against the US dollar. According to the region’s latest PMI surveys, manufacturing growth in the eurozone, Germany and France hit the brakes in February. Meanwhile, lower-than-expected inflation in France added to worries about deflation taking hold in the eurozone. Still, overall euro sentiment remains largely resilient, supported in part by solid capital flows into the euro area as investors seek growth opportunities.

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