The Pound to Euro exchange rate rose to a three-month high at the beginning of this week’s session as weak Eurozone growth led to increased ECB stimulus bets.
GBP/EUR rallied from 1.4000 to 1.4040 last Monday as markets geared up for a potential tightening of monetary policy in the US in December. The previous week’s outstanding non-farm payrolls report was seen to boost Federal Reserve rate hike bets and European liquidity expectations subsequently weakened, which weighed on the single currency.
Sterling ticked higher on Tuesday and leapt all the way to 1.4160 on Wednesday thanks to a surprise dip in the UK jobless rate. Markets were slightly underwhelmed by a weekly wage print of 3.0%, which undershot expectations of 3.2%, but demand for the Pound increased on news that unemployment sank to a new seven-year low of 5.3%. The Euro was damaged by fears that Portuguese debt could be downgraded following the toppling of its latest government after just a few weeks.
Demand for the single currency remained soft on Thursday as European Central Bank President Mario Draghi hinted at further stimulus, saying inflation prospects had ‘weakened somewhat’ and confirming that the bank’s €60 billion per month asset purchasing scheme would run past September 2016 if price pressures continued to flounder.
Friday saw Eurozone GDP slow from 0.4% to 0.3% unexpectedly, which drove GBP/EUR higher during the morning, and the Pound to Euro exchange rate struck a three-month high of 1.4237 when markets reopened for this week’s session as investors braced for a period of risk aversion following the tragic terrorist attacks in Paris.
The outlook for the rest of the week appears to favour further appreciation in Sterling. ECB stimulus bets are likely to bulge following Friday’s devastating events in Paris and this could easily put more downward pressure on the single currency.
Tuesday’s UK consumer price index report is tipped to remain in negative territory at -0.1% but Thursday’s British retail sales print is anticipated to come in strongly at 4.5%, which should maintain demand for Sterling. Thursday’s speech from ECB President Mario Draghi is one to watch and if the central banker speaks explicitly about further stimulus in December then GBP/EUR could rally towards July’s high of 1.4400.
Heads Up
Summary of major upcoming data releases that we think may move the market.