FX Traders Turn Wary Ahead of BoE Event-Risk

Driving Euro bids today is some decent economic data out of Italy and Germany.

German Factory Orders (YoY) for June came in at +4.3 pct. This is above expectations of -0.2 pct.

Italian GDP for the second quarter contracted by 0.2 pct - not as bad as the 0.4 pct contraction analysts had been pencilling in.

See our latest assessment of the Euro in light of this data here.

UK economic data continues to impress

Yesterday we got a great Services PMI release which triggered off the recent British pound rally.

Today, the trend continues with Manufacturing and Industrial Production figures from the ONS giving GBP a boost.

Boris Schlossberg at BK Asset Management says:

"In UK the economic data continued to point to a strong expansion as both Manufacturing and Industrial production increased at their best rate in more than 2 years. MP rose 1.9% versus 0.9% eyed while IP gained 1.2% versus 0.7% forecast.

"According to the ONS, "By far the largest contribution to the quarterly growth in production came from manufacturing, which increased by 0.7% following a decline of 0.2% in Q1 2013."

A barrier to Pound Sterling advances: The BoE

Schlossberg goes on to point out that any fresh advances by the Pound Sterling will be unlikely ahead of the next major event risk for GBP:

"One key barrier will be tomorrow's BOE Inflation report and the speech by Governor Carney, with traders looking for any signs of dovishness from the new BOE chief.

"If Mr, Carney downplays the recent improvements in data cable could trade off the recent highs, but if he assumes a more bullish posture, the pair could catapult through the 1.5500 level as markets will view his remarks as a green light for more appreciation."

Greg Gibbs at RBS says:

"The BoE faces an interesting conundrum heading into its inflation report tomorrow. While they have recently shown a preparedness to reinvigorate monetary easing, the most recent data suggests this is not needed.

"We are still forecasting a weaker GBP, expecting the BoE to use thresholds to signal rates lower for longer."