Forex focus: How central bankers pull the strings This level of plain speaking is unheard of. No wonder sterling and the normally Teflon-coated euro have been bouncing around. "Central banks have decided to become very vocal and every utterance has the currency market shooting one way then the other," says Charles Purdy of Smart Currency Exchange (www.smartcurrencyexchange.com). Each piece of news is seized upon and quickly drives exchange rates one way or the other. Charles Murray, of FC Exchange (www.fcexchange.co.uk), adds: "All three central banks have now hinted at the need for further stimulus. The positive economic data we are seeing mainly from the US and UK is being outweighed by the negative sentiment coming from their central banks. They have realised that scaling back on any future cash injections could be damaging to the world economy. The problem is, everyone has become too dependent on central banks providing liquidity. As Ashley Skinner, of Currencies Direct, says: "Unfortunately, the markets are addicted to loose monetary policy and the sweet nectar that is QE3 [quantitative easing] in America has developed into a worldwide sweet tooth. So shock waves are felt from the tiniest hint of the taps being turned off. The almighty dollar is king at the moment. "We're seeing a market driven almost purely by the dollar at the moment," explains David Rodriguez of Daily FX (www.dailyfx.com). Sterling weakness has more to do with dollar strength than actual currency fundamentals. True, Stateside, the picture is far rosier than in either the UK or the rest of Europe. But the new Governor of the Bank of England, Mark Carney, seems determined to keep downward pressure on the pound. "Mark Carney and co. decided to remind markets of the 'historical weakness' of the current economic recovery just days after the UK service sector - more than 70 per cent of UK GDP - hit a two-year high," says Josh Ferry Woodard of TorFX (www.torfx.com). It is entirely likely that sterling will suffer losses even if second-quarter growth is positive. Chris Towner of HiFX (www.hifx.co.uk) is more upbeat: "Pretty much all year, sterling has traded on the back foot, impeded by talk of triple-dip recessions and sovereign-rating downgrades. However, the reality is not so bad. Now all we need to do is wait for a sterling U-turn. The UK is in a much better position than the eurozone, with the weaker nations lurching from one debt crisis to another. "For a while now, the single currency has been riding the crest of a wave that reacts positively when news isn't as bad as the market was expecting," notes Vimal Popat of VPFX Consulting (www.vpfxconsulting.com). What the market forgets is the underlying sorry state of affairs in the region.