Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate rose by around three cents to a fresh two-month high last week as Bank of England Governor Mark Carney indicated that UK interest rates could rise in around a year’s time.
GBP/EUR rallied by around a quarter of a cent to 1.38 on Monday ahead of Tuesday’s UK CPI result. And when the inflation results were released the Pound managed to avoid defeat even though British inflation fell into disinflationary territory at -0.1% and Eurozone CPI came in higher at 0.0%. Although markets were primed to focus on the day’s inflation data, it was an announcement from the European Central Bank that proved most significant and helped Sterling strengthen by around 100 pips to 1.39. Senior ECB official Benoit Coeure said that the bank was planning to accelerate its quantitative easing programme over the next six weeks to counter the summer lull when liquidity conditions are traditionally lower, and this caused traders to reduce their exposure to Eurozone government bonds.
And Sterling surpassed the 1.40 mark on Wednesday when BoE Governor Mark Carney revealed that two policymakers had seriously considered voting for a rate hike in May. Mr Carney also confirmed that rates were likely to have been raised by this time next year.
The Pound to Euro exchange rate struck a fresh two-month high of 1.41 on Thursday as markets were moved to send Sterling higher following a bumper UK retail sales print of 1.2%, which outshone expectations of 0.4% and represented the highest figure for six months.
GBP/EUR remained at robust levels on Friday thanks to remarks from the IMF suggesting that Greece needs to do a lot more to secure a new aid deal. The prospect of a ‘quick and dirty job’ was firmly outlawed by IMF Chief Christine Lagarde.
With a very quiet economic calendar ahead of us there is every chance that the Pound could retain a sturdy rate against the single currency this week.
With Greece just 10 days away from the brink of default, and a deal still far from being agreed, the Euro does not look likely to mount a significant recovery over the next week. The only major ecostat on the calendar is Thursday’s UK GDP report, which is likely to show that the British economy grew by 0.4% rather than the initially estimated 0.3% in the first quarter. This could easily keep GBP/EUR above 1.40 this week.
Heads Up
Summary of major upcoming data releases that we think may move the market.