Foreign Currency Market Update – GBP / EUR Update
A disappointing UK labour market report and a shift in Federal Reserve rate hike rhetoric allowed the Euro to strengthen by around two cents against Sterling last week.
GBP/EUR began last week’s session at around 1.4080 and tumbled to 1.4050 on Monday.
And the single currency gained more ground, pushing the Pound to Euro exchange rate down to 1.3930, on Tuesday thanks to an upbeat core Eurozone CPI report. The headline consumer price index increased from -0.6% to -0.3%, as expected. But, with volatile food and fuel prices removed, the report showed that the currency bloc actually experienced upward inflation of 0.7% in February.
The Pound’s week of woes intensified on Wednesday when UK data showed that unemployment remained static at 5.7%, confounding expectations of the jobless rate hitting a new six-and-a-half-year low of 5.6%. Demand for Sterling was also impacted by the earnings element of the report, which detailed that wage growth cooled from 2.1% to 1.8% in the three months to January and was seen to reduce the probability that the Bank of England will look to start tightening monetary policy ahead of schedule. Indeed, the bank’s latest minutes report suggested that policymakers are growing concerned with the strength of the Pound versus the Euro and with the slow pace of inflation in the UK. And GBP/EUR hit a fortnightly low of 1.3702 in the evening due to remarks from the Federal Reserve suggesting that interest rates may not be raised in June.
Sterling failed to recover against the single currency on Thursday because Bank of England policymaker Andy Haldane said that, despite Governor Mark Carney’s comments to the contrary the previous week, there was an equal chance of a rate rise or a rate cut from the central bank.
And GBP/EUR remained fairly flat at 1.3780 on Friday as Greek debt concerns prevented the Euro from making up any further ground on Sterling.
It seems likely that Sterling will remain in the region og 1.3800 for the majority of this week’s upcoming session because UK data is expected to see inflation fall closer towards zero but further European Central Bank asset purchases, plus the inevitable disagreements between Greece and its creditors – predominantly Germany – are likely to keep GBP/EUR close to its highest level for seven years.
Heads Up
Summary of major upcoming data releases that we think may move the market.