Forex snapshot

The euro is drifting lower after Germany revealed worse-than-expected PPI data, while sterling has gone from strength to strength after the Federal Reserve continued to taper its stimulus package.

Five and ten pound notes
Source: Bloomberg

Euro slips after German PPI report

The euro is trading at $1.3609, and has been slipping back towards the $1.36 mark after Germany reported a drop of 0.2% in the latest PPI report for May.

The decline in materials used in the manufacturing sector is proof that demand is softening in the strongest economy in the eurozone.

The interest rate cut that was introduced by the European Central Bank at the beginning of the month will take a number of months to trickle down to the economy, but I suspect additional monetary easing will be required by the ECB.

There is little in the way of economic news today other than the eurozone consumer confidence report at 3pm. The April reading was -7 and the consensus is for -6.

If the euro can hold on to the $1.36 level, the next target could be the $1.3640 mark. To the downside, it could move towards the 200-hour moving average of $1.3560. 

Spot FX EUR/USD chart

Pound extends gains

The pound is trading at $1.7055, and has managed to build on its gains versus the US dollar after the Fed reduced it stimulus package.

Janet Yellen also pointed that household spending only increased moderately; this signals that interest rates will not be rising any time soon.

After several attempts at the $1.7 mark, the pound has finally cleared this hurdle and appears to be comfortable in the $1.7-$1.71 range.

On Tuesday the UK will reveal the latest mortgage figures and Mark Carney is already worried about a property bubble. A strong report could drive the pound past the $1.71 level.

Spot FX GBP/USD chart

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.

Find articles by analysts