Foreign Currency Market Update – GBP / EUR Update
The Pound resumed a downward trajectory against the Euro last week as UK election jitters drove GBP/EUR further away from March’s seven-year high.
The Sterling to Euro exchange rate remained sturdy at around 1.3660 last Monday as data from both Britain and the Eurozone impressed: UK mortgage approvals rose 61,800 and British consumer confidence hit a 12-year high of +4 but this was equalled out by reports showing that German inflation ticked higher from 0.1% to 0.3% and Eurozone economic sentiment struck a 44-month high of -3.7.
On Tuesday GBP/EUR rallied by over 100 pips to 1.3820 due to an unexpected upgrade to Britain’s fourth quarter growth report. The Office for National Statistics (ONS) announced that the UK economy grew by 0.6% in the final three months of last year, beating previous estimates of 0.5%, and this helped drive the annualised growth figure up from 2.6% to a nine-year high of 2.8%. The positive revision confirmed Britain as the fastest growing major economy in 2014, which improved sentiment towards Sterling.
The Pound traded close to the 1.3780 mark for the majority of the day on Wednesday as UK election concerns began to impact demand for Sterling. These pre-election jitters meant that GBP/EUR was unable to gather enough momentum to rally on news that manufacturing output struck an eight-month high of 54.4 in March.
And the UK currency continued to suffer from fears of political instability on Thursday as analysts failed to agree upon a winner from a live seven-party television debate. Four polling companies held opinion polls following the debate and they each came up with a different winner, which was seen as further evidence that May’s vote could be the closest in decades. Nobody knows who will be running the country over the next four years and this is deterring business owners – both foreign and domestic – from investing in the British economy.
GBP/EUR succumbed to a new weekly low of 1.3544 on Friday in reaction to a much weaker-than-anticipated US non-farm payrolls report, which was seen to decrease the possibility of the Federal Reserve tightening monetary policy in June.
With little major economic reports to contend with – the Bank of England is almost certainly not going to modify monetary policy on Thursday – the question is: which burning topic will impact the currency market the most? Greece’s struggle to obtain much-needed funding? Or the threat of a hung parliament in Britain? Recent trading patterns suggest that markets are beginning to feel slightly more confident about the situation in Greece, which could pave the way for further declines in GBP/EUR.
Heads Up
Summary of major upcoming data releases that we think may move the market.