The Pound weakened by around -80 pips against the Euro last week as fears of Britain leaving the European Union came to the fore while domestic sentiment also pointed to a period of static interest rates.
GBP/EUR got off to a bad start to last week’s session as investors reacted negatively to a report from Credit Suisse predicting that a ‘Brexit’ would wipe off around -2% of British GDP, deter business investment and put a cap on wage growth. Sterling also suffered as Bank of England policymaker Kristin Forbes noted that falling oil prices would weigh on consumer price growth in 2016, reducing the bank’s necessity to consider tightening monetary policy.
Profit-taking took the Pound higher on Tuesday but markets reversed Sterling’s gains on Thursday ahead of the fourth quarter UK GDP report.
British Growth Accelerates in Q4
On Thursday it was announced that economic activity in the UK accelerated from 0.4% to 0.5% in the final three months of 2015. However, total GDP growth for the year fell from 2.9% in 2014 to 2.2% in 2015, with forecasters expecting productivity to tick lower again in 2016.
GBP/EUR struggled on Friday as investors reacted positively to a report showing that, despite the global oil price collapse, Eurozone consumer price growth doubled from 0.2% to 0.4% in January. This helped the single currency complete an 80 pip weekly appreciation against the Pound.
Analysts Await BoE’s ‘Super Thursday’
There are a couple of important ecostats to look out for this week. German unemployment is tipped to remain at 6.3%, Eurozone retail sales are predicted to rise slightly to 1.5% and UK service sector output is expected to remain sturdy in the region of 55.4.
The most important event on the calendar, however, is the ‘Super Thursday’ trio of announcements from the BoE. Pretty much everybody is in agreement that the bank will not alter its 0.50% interest rate or update its £375 billion asset purchasing target but the outcome of the inflation report is less clear. If Governor Mark Carney chooses to explicitly talk down the prospect of rates rising in 2016 then we could see Sterling depreciate against the Euro. But if the Governor looks through the current oil-induced inflation drought and melee of ‘Brexit’ fears then we could see the Pound stage a recovey.
Heads Up
Summary of major upcoming data releases that we think may move the market.