Weekly finance review
The euro rallied by the most in eight 8 months on Friday but is likely to come unstuck on speculation the European Central Bank will deliver one more interest rate cut at its policy meeting this week.
With the eurozone economy in dire straights and Germany showing more signs of strain, the ECB could even opt for a more aggressive monetary easing response.
Last week saw sterling flipped from 13-day lows to one-week highs in the space of a day, despite overly dovish comments from the Bank of England earlierin the week.
Expectations that the BoE has its emergency moneyprinting anual open and ready for this week’s monetary policy meeting should keep the pound on shaky ground but sterling could however pull together a quick recovery if policymakers take another pro-active move.
Stimulus does have a dilution effect but it may sit well with traders looking to lean on currencies backed by assured-looking central banks.
The US dollar tumbled in the wake of Europe’s latest debtbusting master plan which gave market sentiment a huge boost, sending the safe haven US dollar down by over 2% on Friday; a record daily decline.
Investors may quickly turn cautious, once more is learnt about the latest strategy to save the eurozone which could lead traders straight back into the US dollar.
Markets could also take a guarded approach in front of Friday’s blockbuster US non-farm payrolls data releasewith another weak number forecast. Although this should bolster expectations of a third quantitative easing injection, it will also darken the global growth outlook which could work in the dollar’s favour.
The Japanese yen made a strong start initiallylast week , jumping to multi-week highs as investors tightened positions of safety on more evidence of disconnect between eurozone governments heading into a so-called “make-or-break” summit for the euro.
Economists will anticipate today's key Japanese Tankan survey which looks into the health of big businesses and more crucially, exporters too.
The data is not likely to work well for the yen as estimates suggest the data will add pressure on the government to step-up attempts to dampen the yen’s export-crimping strength. On the other hand, policymakers may have to grin and bear events this week which could see traders pile into the Japanese currency ahead of the European Central Bank’s interest rate decision and US unemployment data.