Foreign Currency Market Update – GBP / EUR Update
The Pound retreated by a couple of cents against the Euro last week as sentiment towards Sterling dropped off following an underwhelming quarterly inflation report from the Bank of England.
Sterling rose to 1.40 on Monday as heavy speculation that the Bank of England was about to deliver a hawkish policy statement drove the Pound higher across the board.
GBP/EUR remained at robust levels on Tuesday thanks to some upbeat UK industrial production data, which beat estimates of 0.1% to hit a seven-month high of 0.7% amid a surge of oil and gas extraction in the North Sea. The single currency was hurt by concerns regarding Greece’s ability to pay back upcoming debt instalments to the IMF.
However, Sterling tumbled to 1.3850 on Wednesday when BoE Governor Mark Carney announced that the central bank was negatively revising its growth forecasts for 2015 and 2016 (both 2.9% previously) to 2.5% and 2.6% respectively. Markets were primed for a hawkish statement from the BoE, but were disappointed by Carney’s vague hints that rates could rise in around a year’s time. British unemployment tumbled to a fresh six-year low of 5.5% and wage growth ticked higher from 1.7% to 1.9% but it was not enough to make up for the underwhelming inflation report. The Euro, meanwhile, was bolstered by a first quarter growth print of 0.4%, which was higher than both Britain (0.3%) and the US (0.05%).
GBP/EUR traded close to 1.3850 on Thursday as remarks from European Central Bank President Mario Draghi suggesting that his quantitative easing programme will not be cut short reduced demand for the single currency.
Although UK construction data impressed on Friday, at 3.9% compared to forecasts of 2.5%, the Pound fell folly to profit taking stances ahead of the weekend and GBP/EUR tumbled to 1.3730.
The main things to look out for this week are the Eurozone and British consumer price index results, both released on Tuesday and both anticipated to show stagnant price pressures of 0.0%. If the Euro inflation report comes in below zero then it could hurt the single currency as it would indicate that progress is beginning to stall. Whereas the Pound might be able to overcome a weaker-than-anticipated result because BoE Governor Mark Carney has already stated on multiple occasions that UK price pressures will sink into negative territory at some point over the next few months. If CPI inflation prints above zero in Europe or Britain then it could give either the Euro or the Pound a bit of a boost.
The BoE minutes are unlikely to show anything that wasn’t communicated in last week’s quarterly inflation report but the Pound is liable to gain if the minutes reveal that any policymakers voted for a rate rise in May.
GBP/EUR is likely to remain bookended by 1.3500 and 1.4000 over the next month and Sterling could trade close to 1.3750 for the majority of this week’s session.
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Summary of major upcoming data releases that we think may move the market.