Foreign Currency Market Update – GBP / EUR Update
The Pound declined by around two cents against the Euro last week as British GDP was confirmed at 0.3% and Greek debt talks rumbled on.
GBP/EUR traded in the region of 1.4150, close to two-month highs, at the start of the week as comments from Greek officials on the possibility of life after the Eurozone weighed on demand for the single currency. Sterling was also boosted by a sharp rise in retail sector activity: the Confederation of British Industry (CBI) reported that optimism among UK firms rose to a 26-year high at the end of May.
Sterling tumbled to 1.3970 on Wednesday when the Queen announced that Prime Minister David Cameron intends to hold his in/out EU referendum by the end of 2017. Investors were miffed by the long time span because it is believed that business investment and economic sentiment could plummet in the run-up to the vote. Essentially, markets want to get the vote over and done with and they want Britain to vote to stay in the Union.
The Pound to Euro exchange rate slid further on Thursday as investors reacted negatively to data showing that the British economy only expanded 0.3% in the first three months of the year. Decent production and construction numbers had caused markets to forecast an upgrade to 0.4%, but softer service sector figures meant that quarterly GDP remained at 0.3% and this led to a period of selling pressure for the Pound.
GBP/EUR fell to 1.3910 at the start of this week’s session in response to a lower-than-anticipated manufacturing PMI score of 52.0 and Sterling could struggle if data results continue to favour the Euro.
European inflation is tipped to rise from 0.0% to 0.2% on Tuesday and the Eurozone unemployment rate is forecast to fall from 11.3% to 11.2% on Wednesday. Both of these ecostats could bolster the appeal of the single currency, but much will depend on the situation in Greece. If the Hellenic government fails to make any progress in debt negotiation talks then we could see GBP/EUR rise back above 1.4000.
Neither the Bank of England nor the European Central Bank are likely to alter modify monetary policy at their respective meetings this week so the most important announcement is likely to be Wednesday’s UK service sector report. If the PMI data shows that activity in Britain’s dominant services industry performed strongly it could bode well for the Pound, but a weak score could weigh on British sentiment.
Heads Up
Summary of major upcoming data releases that we think may move the market.