Foreign Currency Market Update – GBP / EUR Update
Sterling strengthened by around two cents versus the single currency last week as British GDP rose to 0.7%, which kept hopes alive of a Bank of England rate hike taking place before the year is out.
The Pound rose from around 1.4020 to 1.4140 on Tuesday morning in response the to the sanguine 0.7% second quarter GDP print, which matched economists’ expectations exactly. Service sector output contributed strongly to the economy but manufacturing output dragged due to the recent appreciation in the Sterling to Euro exchange rate, which impacted firms’ ability to generate strong demand in Europe.
GBP/EUR ticked higher to 1.4210 on Wednesday thanks to a seven-year high 66,600 mortgage approvals print. The Euro was also hurt by Greek PM Alexis Tsipras’ warning that he may call early elections if rebels within his left-wing Syriza party do not back his decision to request a third bailout package. The announcement led to uncertainty and this weighed on the single currency.
The Pound registered a further set of gains on Thursday, to strike a weekly high of 1.4312, as markets reacted to a German inflation score of 0.2% which was slightly lower than the median consensus of 0.3%.
A mixture of profit-taking and positive Eurozone ecostats allowed the single currency to recover a little against Sterling on Friday. GBP/EUR fell to 1.4220 as German retail sales rose 5.1% on the year and Eurozone consumer prices rose 0.2%.
There are a number of important economic releases on the calendar this week and they are all related to the British economy.
Wednesday’s UK service sector PMI is anticipated to print strongly at 58.0, which is likely to leave the door open to a BoE rate rise around the turn of the year and therefore should support demand for Sterling.
Thursday morning’s British manufacturing report could also boost the Pound if output rebounds from -0.6% to +0.1% as expected.
However, the most important event on the calendar is hotting up to be Thursday lunchtime’s BoE inflation report. If the central bank raises its growth and inflation expectations then markets will likely shoot Sterling higher towards a new seven-year high above 1.4400. However, if the report is tinged with cautiousness then we could see GBP/EUR sink back towards 1.4000.
Heads Up
Summary of major upcoming data releases that we think may move the market.