GBP

Sterling powered on to fresh highs last week, bolstered by strong UK data that fuelled speculation the Bank of England will be forced to hike rates sooner rather than later. GBP/USD touched on the key 1.70 level (its highest since 2009) as service sector PMI spurred demand for the pound. But there was sharp reversal on Friday as the gains were seen as excessive, leaving cable almost flat for the week. Continuing problems in Ukraine dented risk appetite, leaving the over-exuberant pound exposed. Against the euro the pound was up, as EUR/GBP dipped below 82 pence for the first time in weeks. Looking ahead, investors will want to see if Friday’s losses are a blip and the pound will retrace its gains, or if the sell-off is a sign that the steady gains for sterling in recent months are over. Wednesday’s inflation report from the Bank of England and subsequent speech by governor Mark Carney will be the key events for the week.

EUR

The euro was the big mover last week, as European Central Bank president Mario Draghi dropped his biggest hint yet that policymakers are about to take direct action to stem the creeping threat of deflation. EUR/USD dived to a one-month low while EUR/GBP also slumped on the comments on Thursday, dipping close to its lowest level since late 2012. The euro was down against most currency peers, with further pressure coming from the ongoing tension in eastern Ukraine (which Draghi noted would affect the eurzone more than other regions of the global economy). There isn’t much data out this week, except Tuesday’s ZEW German economist sentiment report. Investors will be holding fire until June when, according to Draghi’s comments last week, we should at long last expect to see some serious attempts to spur inflation.

USD

It was a week of two halves for the dollar. After coming under steady pressure early on, the greenback fought back later in the week. USD advanced to a one-month high against the euro, and checked the pound’s gains as Thursday’s upbeat US jobless claims data lent support to the greenback. EUR/USD dipped to a month low, while GBP/USD was flat after the dollar hit fresh multi-year lows earlier in the week. USD/JPY was down for the week as safe haven demand was supported by events in Ukraine. The dollar was lower against its Canadian counterpart for the week, despite Friday’s bounce after weak jobs data in Canada boosted expectations that the country’s central bank would have to lower interest rates. In the week ahead, retail sales, unemployment and inflation reports will set the tone for Fed chair Janet Yellen’s speech on Thursday. How things play out in Ukraine will also drive USD pairs.

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