The Pound Stages a Retreat; GBP/EUR Could Soon be Testing 1.16 Again

The Euro is maintaing a bullish tone against the British Pound; recent descending price action would suggest a drop in GBP/EUR to 1.1567 should the psychological test of 1.16 prove successful.

However, with London markets back in action on Tuesday a pick-up in volumes could underpin the UK currency as corporate flows pick up.

IfO data is in, and it is good (nothing more)

The big data driver for the pound to euro exchange rate on Tuesday comes from Germany where positive momentum was confirmed:

The IfO Current Assessment, released by the CESifo Group, came in at 112.0, ahead of expectations for 110.9.

IfO - Business Climate (Aug) just pipped expectations of 107 by coming in at 107.5.

IfO Expectations data read at 103.3, just ahead of expectations for 103.

Economic risks skewed to the upside

Analysts had however been expecting a strong reading from Germany today; hence we see the Euro being kept in check.

Lloyds Bank Research say:

"Following last week’s release of stronger-than-expected ‘flash’ PMIs in Germany, the risks to today’s IfO survey are skewed to the upside.

"The German economy appears to have found some momentum in recent months, with Q2 GDP growth confirmed at 0.7%q/q in the final estimate, supported by an encouraging pick-up in capital spending.

"We look for today’s IfO Business Climate index to rise from 106.2 to 107.5 in August.

"If realised, this would be its fourth consecutive monthly increase. Clear signs of improvement in the German economy is welcome news for Chancellor Merkel ahead of the 22 September elections.

"That said, the debate over the possibility of a third Greek bailout continues to cast a long shadow."

British Pound weighed down ahead of Carney

Investors will maintain a coy approach to the UK currency ahead of Governor Carney's speech on Wednesday.