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Euro below 1.12, sterling unmoved by better-than-expected UK retail sales

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The US dollar has been the main beneficiary of Thursday’s European Central Bank announcement of its new QE program. The 60 billion a-month bond purchase program along with expectations of higher US interest rates will see a widening gap between the euro and the dollar. The euro extended lower today to hit fresh 11-year lows of 1.1113 in the European session, down from a pre-ECB level of 1.1650.

Against the pound, the euro hit a new 7-year low of 0.7427 and against the yen it hit a 16-month low of 130.89.

The next key event for the euro will be the Greek elections which are set to take place this weekend. Polls continue to show that the left-wing anti-austerity party Syriza is in the lead. Going into the weekend, the euro will likely remain under pressure. Meanwhile, even going beyond the elections, the euro could weaken further as the fact that the ECB left open the possibility that the asset buying program could go on past September 2016 is negative for the euro. The euro has scope to target the next important psychological level of 1.1000.

Important data released today came from the UK. British retail sales showed a surprise rise in December. Retail sales ticked up 0.4% month-on-month versus an expected fall of 0.6%. However last month’s number was a far cry from November’s surge of 1.6%. As a result the brief rally following the data soon faded and sterling fell from a high of 1.5006 to as low as 1.4949 but remained in the 1.49 handle.

The dollar eased against the yen today to fall from an early Asian session high of 118.80 to 117.78. Next week will be important for the dollar as focus will be on the FOMC announcement, US GDP and inflation data. Investors will be looking for clues on the timing of the first rate hike and whether it will be this year.

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