Euro traders will be focusing on this afternoon’s German inflation data. If consumer price pressures eased in June the European Central Bank (ECB) would have more reason to table in an interest rate cut in the near future, so a disappointing result from today’s report would put the euro under pressure. Conversely, an uptick in inflation could lend the euro support ahead of tomorrow’s more influential Eurozone-wide consumer price index. The pound, meanwhile, has stabilised following comments from Boris Johnson, the former London Mayor and current Tory leadership favourite.
Mr Johnson eased fears of a no-deal Brexit by indicating that steps would be taken to avoid a chaotic exit on 31 October.
He said: “It is absolutely vital that we prepare for a no-deal Brexit if we are going to get a deal.
“But I don’t think that is where we are going to end up – I think it is a million-to-one against – but it is vital that we prepare.”
With no UK economic data due out until tomorrow, Sterling traders are focusing on political developments surrounding the Tory leadership race and discussions surrounding Brexit.
Speculation surrounding Friday’s G20 summit is also having an impact on currency market movement.
Higher risk currencies are currently benefiting from reports that the US and China have reportedly struck a tentative trade agreement.
It comes ahead of the meeting between President Donald Trump and Xi Jinping.
Treasury Secretary Steven Mnuchin asserted: “We were about 90 percent of the way there [with a deal] and I think there’s a path to complete this.”
If the two sides do come to an agreement – ending months of uncertainty – a risk-on attitude would send the safe-haven US dollar lower.
Because of the euro’s negative correlation with the US dollar such an outcome could boost the European currency in the short term.