Foreign Currency Market Update – GBP / EUR Update
The Pound rallied by around 150 pips against the Euro last week, reaching a fresh seven-year high of 1.4255 at one point, as the European Central Bank’s quantitative easing scheme weighed on Eurozone bond yields.
Sterling rallied from 1.3880 to 1.3950 last Monday thanks to a better-than-expected UK retail sales report, which showed that consumer spending increased by 1.7% during February, and a poor German trade report, which detailed that German exports shrunk -2.1% in January despite the recent weakness in the Euro.
GBP/EUR rose to 1.4080 by the end of Tuesday’s session in response to comments from Bank of England Governor Mark Carney suggesting that it would be ‘foolish’ to attempt to spur inflation by introducing further monetary easing measures at this moment in time. The single currency was also feeling the effect of the ECB’s new QE scheme, which commenced last week and helped push down the yields on Eurozone government debt, therefore reducing borrowing costs in said countries but also reducing the profit available to investors.
The Pound surged to a fresh seven-year high of 1.4255 on Wednesday morning but GBP/EUR weakened shortly afterwards in reaction to a slightly worse-than-anticipated UK industrial output report. The data showed that, contrary to expectations of a 0.2% expansion, production contracted -0.1% in January.
After helping lift the Pound to six fresh seven-year high peaks in just seven days, investors opted to lock-in profit from the elevated Sterling to Euro exchange rate on Thursday. GBP/EUR dipped to 1.4000 on Thursday evening but rose back to 1.4050 on Friday as traders reacted to comments from German finance minister Wolfgang Schauble suggesting that Greece could accidentally find itself out of the currency bloc if further progress was not made in negotiating the Hellenic nation’s colossal debt pile.
Looking to the week ahead it seems as though GBP/EUR will remain close to 1.4000 as ECB stimulus measures and ‘Grexident’ fears continue to weigh over the single currency.
Eurozone inflation is set to rise from -0.6% to -0.3% but this is unlikely to have a material impact on the ECB’s policy agenda, nor on traders’ appetite to invest in the Euro. British unemployment is tipped to come in at a joint-six-year low of 5.7% but unless wage growth increases dramatically Sterling is unlikely to strengthen significantly against the single currency in reaction to the report.
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