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European Session – Dollar weakness and stronger UK industrial output lift sterling to 3-week high, Carney speech in focus

The euro rallied early in the European session after another sell-off in German bunds today which resulted in 10-year bund yields passing 1.00% for the first time since September 2014.

The euro/dollar pair hit a high of 1.1385 but did not stay for long and dropped back to 1.1259 on weak Italian industrial production data and some headlines regarding Greece. A planned meeting between Greek Prime Minister Tsipras and the leaders of Germany and France in Brussels later today was said to have been cancelled. Greece’s reform proposals submitted on Tuesday fell short of its creditors’ requirements and the European Commission made it appear that the ball is still in Greece’s court and is waiting for the Greek government to come back with another proposal on reforms. Meanwhile, less than three weeks remain until the June 30 debt deal deadline. A deal is required in order to unlock new funds otherwise Greece could default.

Sterling strengthened on a combination of broad-based dollar weakness and stronger UK industrial production data. On a month-on-month basis, industrial production came in at a much higher-than-expected 0.4% in April versus 0.1% forecast. Cable climbed to a 3-week high of 1.5534, up from a day’s low of 1.5368. Focus now shifts to Bank of England Governor Mark Carney’s annual Mansion House speech. This will be a risk event for the British currency since last year’s speech caused a big rally in the pound as the Governor mentioned that a rate hike would come sooner-than-expected. The text of tonight’s speech will be released at 16:00 GMT followed by the speech at 20:00 GMT.

Today the dollar fell to a 2-week low of 122.44 yen from a day’s high of 124.61. The yen gained against all major currencies following Bank of Japan Kuroda’s comments on the Japanese currency’s exchange rate. Kuroda seemed to have shifted rhetoric and showed concern about the yen’s recent sharp fall and said it was unlikely it will fall further. His comments come after the yen dropped to a 13-year low against the dollar on Friday. The yen is headed for its biggest day of gains against the dollar so far this year.

There are no US economic data releases today, leaving the focus on Thursday’s US retail sales data for May. Investors will watch the data for clues about the strength of the economy and how that will impact the Federal Reserve’s monetary policy. The May sales report is expected to be strong.



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