Foreign Currency Market Update – GBP / EUR Update
The Pound dipped by around -150 pips against the Euro last week as investors continued to take profit on GBP/EUR positions following the series of seven-year highs Sterling hit at the start of the month.
The Pound to Euro exchange rate kicked off the week with a sharp -160 pip drop from 1.3820 to 1.3660 as Sterling was hurt by the Confederation of British Industry’s (CBI) export order index plunging to a two-year low of -26 and the single currency was buoyed by a sanguine press conference following a meeting between German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras.
GBP/EUR shrunk to 1.3570 last Tuesday when the British consumer price index unexpectedly dipped from 0.3% to 0.0%. Although the majority of the downward pressure on prices came from the highly volatile food and fuel sectors, investors were perturbed by the result and talk of ‘no-flation’ in Britain helped to decrease demand for the UK currency.
Sterling lost yet more ground, succumbing to a new monthly low of 1.3542 on Wednesday, in reaction to remarks from Bank of England policymaker Kristin Forbes suggesting that interest rates could be slashed if UK inflation projections continued to soften.
However, the Pound’s fortunes improved on Thursday and GBP/EUR rallied over 100 pips, breaking a run of five days of decline, on news that UK retail sales increased by 5.7% on an annualised basis in February.
And Sterling strengthened to 1.3660 on Friday thanks to confirmation from BoE Governor Mark Carney that UK interest rates are likely to rise when the bank finally decides to modify its current benchmark rate.
Looking ahead at this week’s data, it seems possible that the Pound could maintain an exchange rate of between 1.3660 and 1.3800 in the days to come.
UK manufacturing output is set to improve slightly from 54.1 to 54.4 and Eurozone inflation is predicted to come in at -0.4%, down from -0.3% previously. The main driver behind the pair will be BoE interest rate bets, which are looking positive-ish following last week’s comments from Governor Carney.
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Summary of major upcoming data releases that we think may move the market.