Foreign Currency Market Update – GBP / EUR Update
A damning duo of economic reports out of Great Britain sent the Pound reeling against the Euro last week, with underwhelming GDP and manufacturing scores allowing the single currency to rally by five cents against Sterling.
Beginning the week close to seven-year highs of 1.4000, GBP/EUR began its descent on Tuesday morning when British GDP printed at just 0.3%, massively missing economic forecasts of 0.5%. It was the slowest quarterly growth figure since 2012 but Sterling’s losses did not kick in immediately.
Indeed, the Pound had only depreciated by around -20 pips at the beginning of Wednesday’s session. Investors then proceeded to take GBP/EUR down to 1.3880 in reaction to a surprise uptick in German inflation from 0.1% to 0.3%.
And the Pound’s woes intensified on Thursday, with GBP/EUR shedding a further -180 pips to 1.3700 thanks to a symbolic consumer price index print out of the Eurozone. Eurostat reported that price pressures emerged from negative territory on the continent in April, which investors saw as a positive step, and as a potential sign of progress in relation to the European Central Bank’s accommodative quantitative easing programme. Although Eurozone CPI only rose from -0.1% to 0.0%, the idea of progress was enough to stimulate the single currency.
Not content with weakening the Pound to Euro exchange rate by a solid -300 pips, investors opted to take more wind from Sterling’s sails on Friday morning when British manufacturing data came in much lower than analysts had anticipated. Declining prices and a lack of new export orders sent the headline PMI index down from 54.0 to 51.9 in April and this prompted a fresh decline in GBP/EUR to a two-month low of 1.3500.
In the absence of any truly significant data releases this week – upbeat UK service sector data can only prop-up the Pound for so long – the Pound to Euro currency pair is likely to move in tandem with economic sentiment, and economic sentiment is currently being dictated by two massive messes. Namely: the jagged political landscape in Britain and the debt related impasse between Greece and its Eurozone lenders.
Needless to say there have been developments over the past few days, as indeed there have been over the past few weeks, with regards to both messes
.
However, the fact of the matter remains: nobody knows what is going to happen following Thursday’s nailbitingly close UK general election and nobody knows whether Greek leaders will agree a deal with its lenders to keep the Hellenic nation fiscally solvent.
The chances are that investors will grow anxious in the hours immediately preceding and proceeding Thursday’s general election, which could hurt the Pound. But with Sterling having suffered such heavy losses last week, there is also potential for a slight rebound if Greek negotiations are seen to have taken another turn for the worse.
Heads Up
Summary of major upcoming data releases that we think may move the market.