Forex snapshot

The euro is broadly unchanged versus the US dollar as the level of inflation remained the same, while the pound touched the important $1.7 mark but couldn’t hold onto it and has since drifted. 

Euro and US dollar notes
Source: Bloomberg

Euro flat after CPI data

The euro is trading at $1.3536, trading within a tight range this morning due to the level of inflation remaining at 0.5%. This is well below the 2% target but it was in line with expectations, so there was little movement on the back of the report. The euro is showing no sign of recovering the ground it has lost since the European Central Bank interest rate cut, but at the same time it is finding support around the $1.35 level.

Tensions between Russia and Ukraine are on the rise, and the government in Kiev must repay an outstanding debt to a Russia state-owned gas supplier before additional gas can be supplied to Ukraine. A decline in the supply of gas to central Europe could see a drop in the euro. If the euro drops below $1.35 the next level down is $1.3477.

Pound drifts from $1.7

The pound is trading at $1.6967. Earlier in the trading session the pair hit a five-year high of $1.7011 but it didn’t have the momentum to hold on and has dropped lower.

Traders are looking ahead to the UK consumer price index report tomorrow, and the consensus is for a reading of 1.7%; the Bank of England’s target is 2%. Low interest rates and a bond-buying scheme have assisted the British economy, but if the cost of living ticks up the BoE may have to reconsider its policy.

As I previously stated, Mark Carney suggested that interest rates might rise sooner than expected. An unexpected rise to inflation could see the pound target $1.7011, with the 50-hour moving average of $1.6948 providing support.

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