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. 

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.

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