Forex - Weekly outlook: February 25 - March 1

The euro hit a six-week low against the dollar on Friday after euro zone banks said they would repay less than half of the expected amount in emergency loans from the European Central Bank, while uncertainty ahead of Italian elections also weighed.

The ECB said banks are to pay back EUR61 billion of the funds they borrowed as part of the bank’s second long-term refinancing operation one year ago, about half what the market had expected.

The announcement cast doubts over the health of the European banking sector and undermined investor confidence in the euro zone.

Investors also remained wary ahead of the outcome of the upcoming general elections in Italy, amid wariness that a hung parliament could hamper efforts to implement further economic reforms.

However the single currency found support after the Ifo index of German business climate jumped to 107.4 from 104.3 in January, outstripping expectations for a reading of 105.0.

EUR/USD hit 1.3147 on Friday, the pair’s lowest since January 10, before settling at 1.3188, 0.01% lower for the day and down 1.22% for the week.

The yen was lower against the euro and the dollar on Friday as investors awaited news on nominees to replace outgoing Bank of Japan Governor Masaaki Shirakawa, whose policies Prime Minister Shinzo Abe has criticized for not going far enough to combat deflation.

USD/JPY hit a session low of 92.93 on Friday, before settling at 93.36, 0.26% higher for the day, but down 0.26% for the week. EUR/JPYtouched a session low of 122.55 Friday before rebounding to 123.11 at the close, 0.24% higher for the day, but 1.5% lower for the week.

The dollar found support after Wednesday’s minutes of the Federal Reserve’s most recent policy meeting indicated that the bank may wind down its bond-buying program sooner than expected.

The minutes of the Fed’s January meeting showed that policymakers discussed the slowing or stopping of bond purchases even before the job market improves, amid concerns that the policy could cause instability in financial markets.

Elsewhere, the pound ended the week close to two-and-a-half-year lows against the dollar as concerns over weak growth and persistently high inflation weighed.

GBP/USD hit 1.5129 on Thursday; the pair’s lowest since July 2010, before settling at 1.5174 at the close on Friday, down 0.50% for the day and down 2.0% for the week.

Rating’s agency Moody’s cut the U.K.’s triple-A sovereign rating by one notch to Aa1 late Friday, citing a weak outlook for growth and a rising debt burden.

In the week ahead, sterling will come under increased selling pressure following Friday’s downgrade, while investors will also be awaiting political developments in Italy. 

Testimony on monetary policy by Fed Chairman Ben Bernanke in Congress will be closely watched, while data on economic growth from the U.S., U.K., Switzerland and Canada will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, February 25

China is to release the preliminary HSBC manufacturing PMI, a leading indicator of economic health.

In the euro zone, voting in Italy’s general elections will take place for a second day.

The U.K. is to publish industry data on mortgage approvals, an important indicator of demand in the housing sector.

Later Monday, Bank of Canada Governor Mark Carney is to speak; his comments will be closely watched.

Tuesday, February 26

New Zealand is to release official data on inflation expectations, as well as data on the trade balance, the difference in value between imports and exports.

Switzerland is to release official data on the employment level, while the U.K. is to release industry data on retail sales, an important indicator of economic health.

The U.S. is to release a report on consumer confidence, as well as official data on new home sales, a leading indicator of economic health. The U.S. is also to release industry data on house price inflation. In addition, Federal Reserve Chairman Ben Bernanke is to testify on monetary policy before the Senate Banking Committee, in Washington DC.

Wednesday, February 27

Japan is to release official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

Australia is to publish official data on the value of completed construction projects, an important gauge of activity in the sector.

The euro zone is to produce official data on M3 money supply, as well as the Gfk report on German consumer climate, a leading indicator of consumer spending. Italy is to hold an auction of 10-year government bonds.

Switzerland is to publish its KOF economic barometer, designed to predict the medium term direction of the economy.

The U.K. is to release revised data on fourth quarter economic growth, as well as preliminary data on business investments, a leading economic indicator.

The U.S. is to produce official data on durable goods orders, pending home sales and crude oil inventories. Meanwhile, Fed Chairman Ben Bernanke is to testify on monetary policy before the Senate Banking Committee for a second day, in Washington DC.

Thursday, February 28

Japan is to release preliminary data on industrial production, a leading economic indicator.

New Zealand is to publish a report on business confidence, while Australia is to release official data on private capital expenditure and private sector credit.

Switzerland is to release government data on fourth quarter gross domestic product, the broadest indicator of economic activity and the leading measure of the economy's health.

The euro zone is to release official data on consumer price inflation, which accounts for the majority of overall inflation. Meanwhile, Germany is to produce preliminary data on CPI and data on the change in the number of people unemployed in the previous month. France is to release government data on consumer spending.

Canada is to publish official data on the current account and data on raw material prices, a leading inflationary indicator.

Later Thursday, the U.S. is to release revised data on fourth quarter economic growth, in addition to the weekly government report on initial jobless claims and official data on manufacturing activity in Chicago.

Friday, March 1

Japan is to release official data on household spending, capital spending and inflation. Meanwhile, China is to release government data on manufacturing activity. 

In the euro zone, Germany is to publish official data on retail sales.

Switzerland is to release data on the SVME PMI, a leading indicator of economic strength.

The U.K. is to release industry data on house price inflation as well as a report on manufacturing activity and net lending to individuals.

Canada is to publish government data on economic growth, the broadest indicator of economic activity and the leading measure of the economy's health.

The U.S. is to round up the week with a report from the Institute of Supply Management on manufacturing activity, official data on personal spending and revised data on consumer sentiment from the University of Michigan.

Federal Reserve Chairman Ben Bernanke is to speak in San Francisco; his comments will be closely watched for indications on the future possible direction of monetary policy.