Foreign Currency Market Update – GBP / EUR Update
The Pound rallied to a three-week high against the Euro last week as robust British wage data and anxiety surrounding the possibility of a Greek exit from the Eurozone boosted GBP/EUR.
The Pound began last week’s session at around 1.3820 against the Euro but demand for the single currency became compromised on Monday afternoon when talk of the EU announcing a ‘State of Emergency’ in Greece did the rounds.
GBP/EUR leaped higher on Tuesday as traders reacted positively to data showing that Britain’s flirtation with negative consumer prices had only lasted for one month. Following a -0.1% contraction in April, the UK consumer price index rebounded to +0.1% in May and this sent the Pound higher by around a cent to 1.3920.
The Pound to Euro exchange rate rallied by a further 70 pips on Wednesday in reaction to a surprisingly sharp rise in UK average earnings. Compared to forecasts of 2.1%, British wages were reported to have risen by 2.7% in the three months to April, which drove Bank of England rate hike bets higher and therefore bolstered the appeal of the Pound. British sentiment was also helped by news that unemployment remained at a six-and-a-half year low of 5.5% in April.
GBP/EUR traded just below 1.4000 for the majority of Thursday’s session as UK retail sales beat expectations with a 0.2% increase and ‘Grexit’ fears escalated when the latest negotiations broke down within an hour.
Sterling then completed a 300-pip weekly gain on Friday as a rise in reported income tax receipts helped drive government borrowing down to its lowest level for seven-years in May.
There are practically no ecostats on the calendar this week with the potential to have a significant impact on the Pound to Euro exchange rate. This puts even more emphasis on the 11th hour Greek debt negotiations.
GBP/EUR declined earlier this morning on rumours that a new Greek proposal featured the concessions on pensions and tax necessary to broker a deal with the nation’s creditors. However, it later emerged that European leaders were not at all impressed with the latest reform list because it was basically deemed identical to previous proposals.
A deal, however unlikely it appears at this stage, could drive GBP/EUR down to 1.3500. However, nerves could be frayed if no concrete progress is made over the next seven days and it is conceivable that the Pound could strike a new seven-year high above 1.4262 if European leaders cannot reach an accord.
Heads Up
Summary of major upcoming data releases that we think may move the market.