GBP:
Last week saw the Sterling at it's strongest against a weak Dollar, rising to well above the $2 mark after the Bank of England left interest rates on hold. Sterling has now gained more than 4% against the Dollar in the last three weeks.
By contrast, expectations on the extent of monetary easing in the UK have fallen, with markets in early February pricing in as much as 1.25 percentage points of cuts by year-end from the Bank of England compared to less than 75 basis points.
Still a bearish picture at least in the medium term for the UK, the same as the US, and if the US slowdown spills over to the global economy the Sterling will remain vunerable.
Dollar:
The Dollar spent last week going from low to record low as poor economic data and credit market strains hit sentiment. Friday's poor economic figures confirming some traders' fears about the ailing US economy. The currency fell sharply just before the employment figures were released as traders bet on poor numbers and rumors of emergency rate cuts from the Federal Reserve. The Government reported 63,000 jobs were cut, the largest monthly decline since March 2003.
Russell Jones, at RBC Capital Markets, said: "It's been a week of fear and loathing, particularly for credit markets and for the US, and that has driven the currency markets. We're still in the middle of this, we'd still want to short the dollar."
It ended the week 1.1% lower against the Euro at $1.5342 and down 1% against six other major currencies.
Euro:
The euro surged to record highs on Thursday night after the European Central Bank sounded the alarm on eurozone inflation, which made interest rate cuts appear a distant prospect.
Jean-Claude Trichet, ECB president, signalled he could do nothing about the euro's rise after the central bank's governing council left its main interest rate unchanged at 4 per cent, where it has stood since last June.
But he revealed substantial upward revisions to ECB inflation forecasts showing that even next year it was unlikely to achieve its target of an annual rate "below but close" to 2 per cent
Data to look out for this week, UK producer price and house price data, Us retail sales and Euro an Us inflation numbers.
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