The euro has slipped back below the $1.41 level versus the dollar, while also coming under some modest selling pressure versus the GBP, though not before hitting a five month high yesterday versus the UK currency. In terms of forex moves overnight, markets are reacting to comments from Fed officials suggesting that at least some members of the US central bank are starting to give greater consideration to an end to ultra loose monetary policy. The Fed’s Bullard (not a current voting member) told a conference in Europe that the economy was strong enough to allow the central bank begin to curtail its asset purchase plan, while Fisher was quoted as saying that he will vote against any further easing.

Euro sentiment has also been undermined by yesterday’s decision by rating agency Standard & Poor’s to downgrade Greece and Portugal, citing fears that the two may have to restructure their debt and force loses on bondholders under the terms of the new European Stability Mechanism (ESM), which is due to replace the existing bailout fund, the European Financial Stability Facility (EFSF) in 2013.

At the same time though the euro’s losses have been fairly well contained, with further hawkish comments from ECB officials lending some underlying support. The ECB’s newest member, Jozef Makuch (president of the Slovak central bank) was quoted overnight as saying that an April rate hike was “highly” likely. Today sees the release of the European Commission’s sentiment and activity surveys for March, which will be closely watched for direction. Markets will also be keeping a close eye on this afternoon’s release of the US ADP employment report for March, which could provide some insights ahead of Friday’s release of official data.

Tom Trevorrow

Fx Analyst