Forex snapshot

The euro has drifted lower as Russia remains in the spotlight, while sterling traders await the Bank of England inflation report.

Euro and US dollar notes
Source: Bloomberg

Euro dips below $1.34

The euro has lost ground to the US dollar overnight as tensions between Brussels and Russia remain high.

The euro is trading at $1.3393, after subdued overnight trading along with a lack of newsflow left many traders sitting on their hands. The sanctions that are in place will ultimately hurt many eurozone countries, but the main fear is that energy supplies could be cut. A number of countries like Germany depend heavily on Russian energy which flows via Ukraine.

Tomorrow, Germany will report the ZEW economic sentiment; its factory orders and industrial production data were disappointing last week, so I doubt investor confidence will be high given the uncertainty in the region.

A weak ZEW report or energy concerns could push the euro to $1.3340 with $1.3420 acting as resistance. 

Traders await inflation report

Sterling is trading at $1.6790 after edging lower overnight as traders await the BoE inflation report on Wednesday. As Alastair McCaig stated, the pound is oversold versus the US dollar but the BoE inflation report on Wednesday could turn its fortunes around. There were no surprises last week when the BoE kept interest rates unchanged, but the focus will be on Mark Carney’s statement on Wednesday at 10.30am (London time).

It may not be reflected in the price but the UK’s economic indicator is painting a nice picture of the British economy. Any hawkish commentary from Mr Carney could drive the pound to $1.6852 with $1.6738 acting as support.

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