Sterling depreciated by around two cents against the Euro as London Mayor Boris Johnson announced his support for the ‘Brexit’ camp.
GBP/EUR began last week’s session below 1.30 and Sterling failed to overcome that significant psychological level during the week’s session.
1-Year High UK CPI Not Enough to Lift Pound
On Tuesday British inflation printed at a one-year high but the Pound did not register gains against the Euro because analysts deemed the 0.3% CPI print as insufficient to boost Bank of England rate hike bets. GBP/EUR actually slumped over a cent following the inflation report as technical trend lines tempted traders to push the Pound even lower.
On Wednesday it was reported that UK unemployment remained at a near-decade low of 5.1% but sentiment towards Sterling was negatively impacted by an unwanted slowdown in wage pressures. Average earnings cooled from 2.0% to a 10-month low of 1.9%. The single currency flatlined against Sterling as investors continued to react to comments from European Central Bank President Mario Draghi suggesting that further stimulus would be added in March.
Pound Revives on Retail Glory
The ECB minutes confirmed a dovish outlook on Thursday and GBP/EUR rallied by around a cent as traders bet that policymakers would cut deposit rates from -0.30% to -0.40% and increase asset purchases by €10 billion to €70 billion at next month’s meeting. The Pound, meanwhile, was boosted by remarks from BOE policymaker John Cunliffe suggesting that market expectations of rates not rising until late 2019 were unfounded.
Sterling continued to push ahead on Friday as British retail sales impressed at 2.3% and a bumper month of self-assessment tax returns gave way to the largest monthly budget surplus since January 2008.
Mayor Has Major Impact
However, Sterling sentiment soured at the start of this week’s session as London Mayor Boris Johnson announced his support for the ‘Brexit’ camp ahead of the June 23 referendum on Britain’s EU membership. Boris is a hugely popular MP and analysts deemed his defection from Prime Minister David Cameron – who is campaigning to stay in the 28-nation bloc – as a potential game-changer. Investors are growing increasingly concerned that with the support of the influential Boris Britons could vote to leave the EU this June and this is weighing heavily on demand for the Pound.
With traders focussing on the nuances of the EU referendum data due for release this week, such as fourth quarter GDP confirmation and Eurozone inflation, are likely to be overshadowed by the ‘Brexit’ debate.
Heads Up
Summary of major upcoming data releases that we think may move the market.