Sterling crept cautiously against a weak dollar this morning which fell to a three week low against the euro. The pound‘s gains were limited ahead of Tuesday’s UK gross domestic product data for the fourth quarter.

Pound Sterling – UK Markets

Sterling gained on a broadly frail dollar yet remained close to its weakest in nearly two weeks against the currency as Friday’s December retail sales data increased anxiety that tomorrow’s GDP figures will be disappointing. At 0942 GMT the pound traded around 1.137 versus the euro, having edged up earlier in the day, and 1.610 against the dollar. January has been a positive month for the pound, which touched a five-month high against the euro last week, aided by speculation that the Bank of England will pause its quantitative easing policy next month, it remains to be seen as to whether or not this will be the case.

US Dollar – US Markets

The dollar fell to its lowest level in three weeks against the euro after comments from a Federal Reserve official indicated that interest rates were likely to remain low “for quite some time.” The greenback’s decline was prompted last Friday after the release of a disappointing Non Farm Payroll report, which showed payrolls dropped by 85,000 in December. At 0921 GMT the dollar traded at 0.621 against sterling and 0.706 versus the euro. It could be a slow news day for US currency. However, the Trade Balance expected this afternoon could provide further volatility.

Euro – European Markets

The euro’s rise against the dollar intensified this morning on speculation that investors will increase carry trades with the greenback as the funding currency. AT 0926 GMT the euro traded at 1.415 against the euro and 0.879 to the pound. The euro’s movements will likely be determined by shifts in equities as well as information from the US as no news is expected from the Euro-Zone.

Other Currencies – Highlights

Renewed optimism in the global economy stimulated demand for currencies from commodities-rich countries such as the Aussie and Kiwi dollar. The Japanese Yen advanced higher against major currencies, trading around 127.556 against the euro, 145.10 versus the pound and 90.11 against the dollar at the time of writing. However, Japan's new finance minister, Naoko Kan, stated shortly after taking over the position this week that he is in favor of a continued weakening of the Yen versus US currency.