The euro remains under downward pressure as we head into the first weekend of the year, starting the day below the $1.28 level versus the dollar and well below Stg0.83p versus sterling. As well as seeing 15-month lows versus the USD, heavy losses were also seen versus the yen overnight as the single currency continues to be dragged down by concerns about Europe’s debt crisis and its banking sector. With markets not expecting next Monday’s meeting between France’s Nicolas Sarkozy and German Chancellor Angela Merkel to produce much in the way of positive news downside pressure is expected to remain in place. Reports suggest that the meeting is to focus on the need for enforcing budget discipline but markets are looking for much more at this stage. Traders will also be on edge ahead of key bond auctions in Italy and Spain next week.

Overnight moves have left markets eyeing the $1.26 level, though this could be a step too far ahead of this afternoon’s release of the crucial US non-farm payrolls report for December. Markets are looking for further evidence of a reasonable recovery in the US economy and a good number could provide a boost to risk sentiment going into the weekend. Any relief for the euro, however, could prove to be little more than temporary. Other data to watch today include the European Commission’s business activity and sentiment surveys for December.

Sterling continues to benefit from the euros’ woes, hitting its highest level versus the single currency in well over a year yesterday. The GBP was helped by a better than expected UK services PMI for December as well as the concerns about the eurozone. The PMI rose to 54.0 last month, its best level since July of last year and well ahead of market expectations.