Forex snapshot

Mark Carney's comments have pushed the pound higher while the euro pulls back lost ground.

A pound coin
Source: Bloomberg

Sterling eyes $1.70

The pound is trading at $1.6982, up 0.3% after Mr Carney stated the Bank of England could increase interest rates sooner than traders expected.

The announcement pushed the pound higher versus the US dollar, but it didn’t have the momentum to reach $1.70. George Osborne has given the BoE the power to limit mortgage lending by UK banks, and Mr Carney will use this to rein in borrowing by homeowners.

In the short term I think the pound could trade above the $1.7 mark, but I suspect that Mr Carney was sending a message to the markets that interest rates will not stay at historic lows forever.

At 1.30pm, the US will reveal the latest PPI report and the consensus is for an increase of 0.1%. If the figure is stronger than expected we may see some profit-taking which could put the pound on a path towards £1.6850.

Euro off lows

The euro has managed to pull itself off its lows despite underwhelming figures from the eurozone this morning.

The euro is trading at $1.3564, up 0.9% even though French unemployment and Germany consumer price index were weak. The one saving grace was that both reports were in line with expectations. The euro traded as low as $1.3519 yesterday but has started to pull back some of the week’s losses today.

On Monday, traders will be focused on the eurozone CPI figure at 10am (London time). The reading in May was 0.5%, and if the report shows a decline in June this will put pressure on EUR/USD.

Alastair McCaig stated, if the euro drops below $1.3505 the next level down to watch out for is $1.3477.

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