Euro dented by deterioration in German economic sentiment

The euro faced resistance on Tuesday, following a surprisingly large decline in German economic sentiment.

Meanwhile, the pound is enjoying some support so far this morning, with GBP/EUR firming to €1.1920 and GBP/USD up at $1.3009. GBP/CAD is stronger at CA$1.7786, while GBP/AUD and GBP/NZD are buoyed at AU$1.9301 and NZ$2.1392, respectively.

Looking ahead, will a stalling of UK inflation see Sterling continue to climb today?

What’s been happening?

The euro stumbled during yesterday’s session, in response to Germany’s latest ZEW economic sentiment index.

EUR investors were dismayed as morale in the Eurozone’s largest economy declined at a faster-than-expected pace this month.

This was also the first fall in a year, with the deteriorating economic outlook being attributed to French political jitters and uncertainty over the European Central Bank’s (ECB) monetary policy.

In contrast, the US dollar firmed on Tuesday, following the publication of the latest US retail sales figures.

While consumer spending stalled in June as forecast, sales growth was revised up from 0.1% to 0.3% in May, providing a lift for the ‘greenback’.

However, these gains proved modest in scope as USD investors continued to price in an expected interest rate cut from the Federal Reserve in September.

Meanwhile, in the absence of any notable UK economic data, the pound traded sideways during yesterday’s session.

What’s coming up?

Today’s session kicked off with the publication of the UK’s latest consumer price index.

According to data released by the Office for National Statistics (ONS) UK inflation held at 2% in June, beating forecasts it might slip to 1.9%.

This has lifted the pound so far this morning, as it is seen as making it slightly less likely that the Bank of England (BoE) will deliver an interest rate cut next month.

Also of note to GBP investors today will be the King’s Speech at the opening of parliament, in which the Labour government is expected to outline its plans to boost economic growth.

Meanwhile, the Eurozone will publish its own CPI figures later this morning. June’s finalised figures are expected to confirm inflation in the bloc began to decelerate again at the end of the second quarter. Will this stoke ECB rate cut bets and drag on the euro?

On the other side of the Atlantic the focus will be on the latest US industrial production figures. Economists predict production slowed last month, which could drag on the US dollar this afternoon.