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EUR/USD fell to a nine year low on Friday, being sold off on the prospect that the European Central Bank will initiate something that more closely resembles huge and full blown quantitative easing before the month is out.  There’s also a concern that Greece could pull out of the eurozone following the country’s national elections on 25th January.

Alex Tsipras, leader of opposition in Greece, is threatening to stop co-operating with the bail-out terms if his party wins the election, which could well lead to Greece being expelled from the eurozone altogether.  Data wise, it wasn’t a good week for the eurozone – German prelim CPI data was released on Monday, coming in under market expectations at 0.0% vs. 0.1%. In addition, eurozone CPI printed at -0.2% vs. 0.0%, showing that Europe has slipped into a period of deflation.

By Alex Edwards at UKForex, an international money transfer service

Meanwhile, the dollar index pushes ever higher amid a backdrop of tumbling oil prices.  USD bids intensified on Wednesday following the release of a strong ADP employment report and in the wake of the FOMC minutes.

The minutes showed that most Fed members “saw no clear evidence of a broad-based acceleration in wages” and that “falling prices could make companies reluctant to raise wages, which would hurt the recovery at home”. The minutes also said that “most participants agreed that it would be useful to state that the Committee judges that it can be patient in beginning to normalize the stance of monetary policy”. There is still no indication on when the first rate hike would be and, overall, the effects on FX rates were fairly muted.

US non-farm payrolls data was then released on Friday, showing that 252,000 jobs were added by US employers in December which beat expectations for 241,000.  After GBP/USD looked to be recovering towards the end of the week, this release saw cable snap lower again and the pair finished the week close to the 1.51 level.

The pound suffered last week as a result of a run of disappointing economic data including construction and services PMI.   Meanwhile, the Bank of England left interest rates and its asset purchasing programme unchanged on Thursday – a total non-event.

The focus next week will be on UK inflation data, due on Tuesday. If this prints weaker than expected it will underline expectations for the Bank of England to put off a first rate hike until 2016, which could further weigh on GBP.  Most of the market’s attention will be on US events including retail sales, PPI, Philly Fed manufacturing and CPI inflation. Rhetoric and rumours surrounding the state of the eurozone will no doubt play a big part in the euro’s direction too.

In our latest podcast, we talk about  EUR/USD crash, FOMC minutes, US jobs and Venezuela with oil