Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate rallied above 1.3600 for the first time in seven years last week as fears of an untimely Greek exit from the Eurozone escalated.
Sterling began last week’s session in good form due to Bank of England Governor Mark Carney’s comments on the positive impact that plunging oil prices could have on the UK economy and GBP/EUR extended its gains on
Monday evening when news hit the wires that Greek debt negotiations had broken down after just half an hour.
However, demand for the UK tender decreased on Tuesday morning, with Sterling falling to a weekly low of 1.3450 in reaction to the worst UK consumer price index score on record. The report showed that British inflation plunged from 0.5% to a more-than-25-year low of 0.3% in January, and this took GBP/EUR lower by around 90 pips.
But demand for the Pound proliferated on Wednesday morning in response to a robust set of labour market figures. It was reported that a -38,600 drop in jobless claims and a +103,000 surge in newly created jobs helped bring the British unemployment rate down to a new six-year low of 5.7%. The upbeat ecostat allowed Sterling to reach a new seven-year high exchange rate of 1.3600 versus the Euro.
Despite data showing that UK retail sales dipped -0.3% in January, GBP/EUR continued to strengthen through Thursday and Friday due to concerns over the future of the 19-nation currency bloc. However, the single currency found solace late in the day on Friday when an eleventh hour deal was brokered allowing Greece to maintain Eurozone membership and to continue receiving financial assistance from the European Central Bank, the EU and the IMF for at least another four months. The last minute debt deal helped bring Sterling down to 1.3530 against the single currency.
Looking at the economic calendar for the coming week there does not appear to be too much data of market moving significance; Tuesday’s Eurozone CPI report is tipped to show inflation remaining at a five-year low of -0.6%, Thursday’s German labour market report is set to see unemployment hold steady at 6.5% and (also released on Thursday) Britain’s fourth quarter GDP report is expected to confirm that the economy grew by 0.5% at the end of 2014. All in all a fairly drab week of data. This means that most traders will be doing what they have been doing quite a lot recently: focussing on events in Greece.
The Greek debt deal should provide the Euro with some respite over the next five days, but the short term aspect of the agreement (it runs out in just four months) means that Sterling should remain close to last week’s seven-year high; perhaps in the region of 1.3500.
Heads Up
Summary of major upcoming data releases that we think may move the market.