By Carl Hasty, Director of Smart Currency Business
Will UK data support sterling's recent strong performance?
Sterling rounded off last week in positive fashion, thanks to words of encouragement for the UK economy from a member of the Bank of England.
Policy maker Martin Weale said that the UK recovery may happen faster than officials had previously predicted, and as a result sterling reached a two week high against the US dollar as it rose for the second consecutive week. This week, data is thin on the ground ahead of the release on Wednesday's of the minutes of the last Bank of England Monetary Policy Committee meeting. Firstly, the asset purchase and bank rate votes will be revealed with investors always keen to hear exactly how members voted.
Busy week for Eurozone data, will it help or hinder the euro?
Friday was a relatively uneventful day for the single currency as it saw little movement against sterling and made modest gains against the US dollar. The finance ministers of the European Union did engage in an important debate on Friday regarding the 'Single Resolution Mechanism' – the system that will oversee the Eurozone banking system – but little was achieved in the way of finding common ground. The first big data release of this week will be tomorrow morning's Economic Sentiment figures coming from Germany. Later in the week, German and French flash manufacturing data releases are likely to affect euro performance, whilst on Friday's German Business Climate data may spur market volatility on Friday.
Lots of key US data this week …
The US dollar fell further on a disappointing Friday as further economic data from the country missed expected levels, lowering belief's that the Federal Reserve will begin tapering its quantitative easing program in the near future. Data figures from the Empire State manufacturing index, import prices, and industrial production all failed to reach their anticipated levels, pushing the dollar down further for the week. Moving into this week, words from various Federal Reserve members will be key points of interest with Chairman Ben Bernanke's speaking on Wednesday. Wednesday also has Consumer Price Index, retail figures and existing home sales in a busy day for dollar data, preceding the minutes from the Federal Open Market Committees meeting.
Commodity backed currencies buoyed by Yellen's comments
Elsewhere on Friday, we saw the Japanese yen collapse through its support levels. Janet Yellen, strong favourite to be the next chairman of the Federal Reserve, put forward an argument for continued quantitative easing, which triggered a balloon in appetite for risk in the marketplace. This pushed down the traditionally safe-haven yen and triggered global rallies in equities and commodities. Because of this we saw the commodity-backed Australian and New Zealand dollars surge as traders looked to buy in to riskier assets. We also saw the Canadian dollar struggle after a report on Friday showed the nation's housing market had cooled.