FOREX-Euro, pound tread water before German Ifo, Carney testimony

Tue Jun 24, 2014 3:48am EDT

Related Topics

* Weak German survey would be likely to push euro lower

* BoE chief to be quizzed by lawmakers on rates

* Japan to announce more 'Third Arrow' policies (Adds details, quotes)

By Anirban Nag

LONDON, June 24 (Reuters) - The euro and the pound traded steady on Tuesday before testimony from Bank of England chief Mark Carney and a German sentiment survey that could highlight the monetary policy divergence between the euro zone and Britain.

Investors also looked ahead to an economic policy update from Japan later in the day.

In Europe, the German Ifo survey at 0800 GMT is likely to provide signs of how companies in the euro zone's largest economy are responding to recent easing measures by the European Central Bank.

Its business climate index is forecast to show a reading of 110.2 in June, down from 110.4 in May while the expectations index is forecast to dip to 105.9 from 106.2.

On Monday, German PMI data fell short of expectations, suggesting the economy could be losing momentum. Further evidence of that would be likely to keep pressure on the ECB to ease policy even further in the coming months.

"There is a downside risk to the Ifo expectations survey but we will need a reading of 104 and below to see the euro drop sharply," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

The euro was flat on the day at $1.3605, having traded on either side of $1.3600 in the past few sessions. Against the yen, the common currency stood at 138.75, while the dollar fetched 102 yen.

ABE AND CARNEY

Japanese Prime Minister Shinzo Abe will detail his so-called "Third Arrow" policies including phased corporate tax cuts and changes to the $1.26 trillion Government Pension Investment Fund (GPIF), the world's biggest pension fund.

Given that many of the reforms have already been leaked or announced by officials, the risk is that they could receive a lukewarm response from investors. But the market will be keen to see how they are fleshed out and implemented.

"Much of the attention, particularly from foreign investors, is on GPIF reform," said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo.

"But judging from what the GPIF has been implying so far, portfolio allocation details are not expected to be revealed until August or even October, so any market reaction today is likely to be limited."

Abe's government is pushing the GPIF to buy more stocks and invest less in government bonds, which is expected to have repercussions on financial markets given the fund's size.

Meanwhile, Bank of England Governor Mark Carney's appearance at a parliamentary committee at 0830 GMT could be a potential driver of sterling.

Of particular interest for traders is whether Carney will provide more hints of an early rate hike, after he suggested as much earlier in the month and set sterling on course for a near six-year peak versus the dollar.

The pound traded at $1.7025 after reaching $1.7064, its highest since October 2008. Traders said if investors get the impression from Carney that a rate hike is unlikely before the year end, the currency would be sold off.

"If that happens, we could see a pullback in sterling but any rise in euro/sterling should be sold into," added CIBC's Stretch. (additional reporting by Ian Chua; Editing by John Stonestreet)

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