Foreign Currency Market Update – GBP / EUR Update
The Pound to Euro exchange rate sunk to a 50-day low at the beginning of last week’s session and GBP/EUR has remained weak since then.
Sterling slid from 1.3860 to a 50-day low of 1.3720 last Monday as investors reacted to dovish remarks from Bank of England Deputy Governor Minouche Shafik suggesting that UK wage growth is not currently strong enough to prompt a rise in interest rates. The Euro also benefitted from some stronger-than-anticipated industrial production data, which outperformed forecasts of 1.4% with a 1.9% rise.
The Pound rallied by around 70 pips on Tuesday following a positive consumer price index score of 0.1%, which eased analysts’ concerns after two months of disinflation. However, the gains were short-lived and GBP/EUR settled back down to 1.3760 by the end of the night.
UK data on Wednesday showed that unemployment fell to 5.2%, its lowest level for nearly 10 years, but Sterling sentiment was hurt by a slide in average earnings growth, which weighed on rate hike expectations. Wage growth slowed from 3.0% to 2.4%.
GBP/EUR remained fairly flat at 1.3760 on Thursday following the Federal Reserve’s decision to raise interest rates for the first time since 2006, which had less of an impact on financial markets then some had anticipated. UK retail sales surged 5.0% year-on-year but demand for the Pound did not follow suit.
Looking ahead at this week’s economic calendar, fresh data of significance looks thin on the ground and GBP/EUR could remain close to 50-day lows.
British GDP is forecast to be confirmed at 2.3% but because the figure relates to third quarter growth the impact on Sterling is likely to be minimal. UK government borrowing figures for November are due on Tuesday, with a predicted rise from £7.5 billion to £11.1 billion liable to keep GBP/EUR below technical resistance at 1.3820 in the run-up to Christmas.
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