Ahead of key economic data this week, sterling has started on the back foot, erasing the gains it made on Friday against both the euro and the US dollar.

Investors took cues to sell the pound following a report suggesting that in this Wednesday’s quarterly inflation report, the Bank of England will lower growth forecasts for the UK economy. If this comes into fruition, then the pound could fall further as the lower growth forecast would contradict Mervyn King’s comments that the UK is making a steady recovery.

Ahead of key economic data this week, sterling has started on the back foot, erasing the gains it made on Friday against both the euro and the US dollar.

Investors took cues to sell the pound following a report suggesting that in this Wednesday’s quarterly inflation report, the Bank of England will lower growth forecasts for the UK economy. If this comes into fruition, then the pound could fall further as the lower growth forecast would contradict Mervyn King’s comments that the UK is making a steady recovery.

In Europe yesterday the Eurogroup discussed a possible €17bln bailout for Cyprus; with ECB board member Joerg Asmussen citing that an aid package for Cyprus could be in place by April. The single currency gained in the afternoon following comments made by ECB council member Jens Weidmann stating that the euro was not overvalued and warned governments against trying to weaken the euro.

From the US, Federal Reserve Vice Chairman Janet Yellen signalled last night that the Fed may look to maintain easing even after utilising QE to bring down the unemployment rate, by keeping interests rate near zero.

The inflation rate, due for release this morning, is expected to increase to 2.8%, however a drop in the rate could fare badly for the pound as it would give the BoE less scope to raise interest rates in the UK.

Key Announcements:

9.30am – GBP – Consumer Price Index (YoY): Expected to increase to 2.8%.

9.30am – GBP – Producer Price Index (YoY): Expected to decrease to 2%.

13.45pm – CAD – BoC Governor Mark Carney Speech.

19.00pm – USD – Monthly Budget Statement.