Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate slumped by four cents last week as soft UK retail sales and progress in Greece helped the single currency recover from a seven-year low against Sterling.
GBP/EUR slid from 1.4400 to 1.4375 last Monday as investors reacted to the positive news that the Hellenic Republic had used its latest bridging loan to pay itself out of arrears with the IMF.
Tuesday saw a steep drop in demand for the Pound as British Chancellor George Osborne laid out plans to cut spending by a further -£20 billion in November. The planned austerity package was seen to have the potential to sting UK growth prospects and this drove Sterling lower by around -150 pips to 1.4220.
The Pound managed to rally back to 1.4300 on Wednesday when the latest minutes report from the Bank of England indicated that policymakers may be willing to consider hiking interest rates soon, now that the threat of a ‘Grexit’ appears to have receded considerably. However, the Euro was boosted by news that Greece’s latest austerity bill made it through parliament despite another hefty rebellion among the ruling Syriza party.
A downbeat UK retail sales report took GBP/EUR lower to 1.4120 on Thursday as markets responded to news that British consumer spending declined unexpectedly by -0.2% in June. Analysts had been primed for monthly expansion of +0.4%. The dud report caused some speculators to rein in their bets of a BoE rate hike because consumer spending accounts for around 70% of British economic output.
The Pound to Euro exchange rate sunk by a further -100 pips when markets reopened for the week as investors hedged against a weak UK GDP score.
Tuesday’s growth report is anticipated to show an acceleration from 0.4% in the first quarter to 0.7% in Q2. However, concerns over domestic spending trends and the impact that the recent appreciation in Sterling has had on exports mean that traders are reluctant to bet on a strong number. If the report disappoints we could see GBP/EUR slip below 1.4000 but if the number is good we could see Sterling rise back towards the 1.4200 mark.
Later on in the week German inflation is tipped to remain at 0.3% and Eurozone consumer prices are likely to remain at 0.2% but the UK growth repot is liable to dictate sentiment in the GBP/EUR pair in the days ahead.
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Summary of major upcoming data releases that we think may move the market.