Forex snapshot

David Madden looks at how recent comments have affected the EUR/USD and GBP/USD pairs.

Euro holds steady after Weidmann comments

The euro has gained some ground versus the US dollar, after Jens Weidmann stated an appetite for eurozone bonds could strengthen the currency.

The EUR/USD pair is trading at $1.3708, up 0.1% on the day, after Jens Weidmann of the Deutsche Bundesbank stated it would be ‘short sighted to take a one-dimensional view of the exchange rate’. It should be noted that Mr Weidmann is on the hawkish side of the European Central Bank divide. Yields on eurozone governments bonds are very low, and Mr Weidmann feels the demand for sovereign debt could rise if the euro falls in value.

Construction activity in the eurozone declined in March, which  puts additional pressure on the ECB to begin monetary easing, and there is the speculation this will begin next month. We are not expecting any major economic data from the eurozone today; tomorrow Germany will announce its producer price index at 7am (London time).

As I stated that previously, the euro has been trading within a tight range recently, and if tomorrows German PPI figures are poor we could approach the $1.3660 level. We would need very strong data from Germany to reach the 200-hour moving average of $1.3769.

Spot FX EUR/USD chart

Pound higher after Carney’s comments

The pound has continued to pull back the losses it suffered last week after Mark Carney’s remarks on the housing market.

Over the weekend Mr Carney said the property market poses the biggest risk to the economic recovery. UK house prices are increasing at the fastest rate in more than six years and the rock-bottom interest rates are fuelling the boom. The Bank of England needs to look at the big picture; low unemployment and real wage increases are crucial to a genuine economic recovery. A rising property market is a by-product of record-low interest rates. Mr Carney is unlikely to increase the base rate pre-maturely just to curb the housing bubble, but it underlines the momentum of growth in the British economy.

Tomorrow, the UK will announce the latest CPI report and the consensus is for a level of 1.7%. If the figure comes in above expectations the pound could exceed the recent high of $1.6860. The figures would have to be exceptionally soft to retarget $1.6740.

Spot FX GBP/USD chart

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