Foreign Currency Market Update – GBP / EUR Update
A slowdown in British wage growth and a slender rise in the number of people unemployed weighed on Sterling last week and helped the Euro rally by around half a cent.
GBP/EUR softened by around 80 pips last Tuesday as markets reacted positively to news that after 23 hours of technical negotiations between Greece and its creditors a deal had been reached for the Hellenic Republic to receive a new bailout package worth around €86 billion.
Sterling ceded more ground to the single currency on Wednesday when British data showed that the number of people unemployed rose by 63,000 in the three months to June. Perhaps more significantly: the report also indicated that wage growth slowed from 3.2% to 2.4% during that period, which was markedly less than the median market forecast of 2.8%. This brought the Pound to Euro exchange rate to a monthly low below 1.4000.
GBP/EUR remained fairly flat on Thursday as German inflation printed at 0.2% and Greek GDP came in at 0.8%. The sturdy Greek score shocked economists who had been primed for 0.5% contraction but sentiment only improved marginally because Greek economic output is likely to have plummeted in recent months due to the imposition of capital controls.
The Pound rallied to around 1.4080 on Friday as UK construction output printed at 2.6%, up from 2.1%, and Eurozone GDP was revised down to 0.3%, from 0.4% previously. But this still left Sterling down by around half a cent on the week.
There are a couple of important British data prints to look out for this week but neither is predicted to yield any massive shifts in sentiment.
The first and most significant report to keep an eye on is Tuesday’s UK CPI figure. The market is prepared for another month of stagnation but there is a chance that underlying wage pressures could have tipped the inflation report higher and this could benefit the Pound. However, if the contractionary commodity climate is seen to have weighed on prices and the CPI slips back into negative territory then we could see Sterling shrink as Bank of England rate hike bets are postponed.
The second report on the radar is Thursday’s British retail sales index. If the data shows a robust 4.3% year-on-year rise, as expected, then demand for Sterling is likely to increase but confidence could be compromised by a lower result.
With Greek issues looking much less threatening than they once were GBP/EUR seems set to trade in a tight range over the next seven days.
Heads Up
Summary of major upcoming data releases that we think may move the market.