Currencies: What's in store this week?

Risk appetite remains at the forefront of currency market trends as this week begins, with progress having been made in Greece to secure further bail-out funds from the EU and thus avoid a debt default.

**Pound**

The Bank of England (BoE) increased the value of its stimulus programme last week and with that in mind, economic activity indictors this week will be scrutinised for any signs of a continued economic slowdown in Britain.

The BoE Monetary Policy Committee has not expressed any concerns that the added liquidity will stoke an increase in inflationary pressures and maintains that while inflation will remain elevated over the short-term, it will fall back below target.

The release of consumer price index (CPI) inflation figures tomorrow will thus be assessed in relation to the UK central bank's inflation position and should the figures meet the forecasted releases, it could provide some support for the pound from an investor confidence perspective.

UK unemployment data and the release of retail sales figures on Friday will be the other main focal points for sterling.

**Euro**

German GDP figures will be crucial for direction on European markets after the European Central Bank (ECB) kept interest rates unchanged last week and confirmed that it saw tentative signs of economic stabilisation within the eurozone. Initial estimates for fourth-quarter growth in Germany are for a fairly sharp deterioration; forecasts are for a -0.3% quarter-on-quarter growth rate versus 0.5% in the previous quarter.

Combined with the recent increase in uncertainty over eurozone stability after the Greek government took a considerable amount of time in approving the required austerity plans to secure further bail-out funding, the weaker German growth number could easily trigger an increase in risk aversion that would weigh on the single currency.

Economic sentiment and inflation data will certainly not be ignored this week as both will give insight into possible underlying economic trends with the European Union. Confidence is expected to remain low while inflation figures are likely to remain in line with the ECB's assessments. Neither of these events are likely to be euro positives but they could quite easily trigger a profit rally in the single currency if the figures beat the consensus forecast.

**Dollar**

The US dollar will continue to be affected by safe-haven flows this week. Uncertainty towards Europe may have diminished, but with lower growth figures from Germany expected later in the week investors are expected to maintain fairly low risk positions ahead of the release.

Signs of an economic recovery in the United States have greatly influenced the strength of the dollar in recent weeks, so the release of US retail sales and weekly jobless claims will be reviewed to see whether this trend is continuing or if Fed chairman Ben Bernanke was justified in expressing a slightly cautious tone regarding the US economy.

US inflation figures round out the economic data calendar for the week, US PPI data is scheduled to be released on Thursday with CPI inflation numbers expected on Friday. Both of these indices are expected to show a lowering in price pressures that will be seen as a positive despite the Fed's pledge to hold interest rates at ultra-low levels.