Four-day decline presents the worst run in three months for GBP

The BoE governor is set to address an international audience of business representatives tomorrow in Glasgow, with Britain struggling to entrench a revival in exports as business investment and consumers continue to drive the UK economy. The biggest obstacles that Carney faces are the sluggish European Union economy and the drag of the strengthening pound. The ECB is expanding stimulus but until the euro region is ready to buy more from Britain, the goal of a shift away from household spending may remain elusive.

Data out on Friday is expected to show that the UK economy has expanded by 0.8% in the second quarter, according to a survey of economists. That would match the pace of the first three months of the year and mark the point at which Britain has completely made up the output lost during the financial crisis.

Against USD, a four-day decline presents the pair’s worst run in three months (1.7050). The next significant step is likely to decide a ‘break’ for bears or revival of the long-standing trend.

Negative for the pound:

• The UK economy is currently unbalanced internally and externally

• GBP’s strength hurts UK companies that get sales and profits from abroad and report in Sterling

• The market might not be ready for aggressive monetary tightening/interest rate hikes

• The UK needs much stronger domestic demand in the euro zone and there’s not much Carney can do about that

Mario Draghi’s ambitions to weaken the euro are at the mercy of Federal Reserve Chair Janet Yellen. The US central bank chief sent the euro sliding below $1.35 last week for the first time since February when she said US interest rates may rise sooner than investors expect. Dealers in eurodollar, the world’s most-traded currency pair, say they’re increasingly influenced by the US because they’ve embraced the interest-rate cuts Draghi unveiled and concluded he has no further surprises in store.

Germany's economy is likely to have stagnated in the three months to June, according to the nation's central bank, as the EU's largest economy was weighed down by geopolitical tension, weak construction and weak industrial output.

Positive for the euro:

• The ECB has embarked on a new round of measures to ease monetary policy, making €700Bn of cheap funding available.

Negative for the euro:

• The market is completely ignoring the European news

• The currency is being heavily influenced by other currencies and the bailout plan may take longer and cost more than originally expected.

• Deflation worries remain high. Unattractive interest rate differentials will weigh on the EUR through the remainder of the year.

• Reducing borrowing costs and increasing the money supply tend to weaken a currency by making it less profitable for an investor to hold.

The June Consumer Price Index (CPI) statistics are due at 12:30 GMT and the consensus is for the annual pace to maintain its 2.1 percent clip while the core reading maintains 2.0. If the Fed is to hike, it will be on the basis of price pressures. A substantial deviation may be needed though with the Fed, NFPs and GDP next week.

US price-growth readings have increasingly outperformed market forecasts since the beginning of the year, opening the door for an upside surprise. Such an outcome may inspire speculation that the time gap between October’s end of Fed QE and the first subsequent interest rate hike will be shorter than expected, which could potentially drive the US Dollar higher.