The Pound to Euro exchange rate weakened by around two cents last week to strike a series of fresh 16-month lows as concerns surrounding the upcoming EU referendum escalated.
Sterling slid across the board at the beginning of last week’s session as London Mayor and popular Tory MP Boris Johnson announced that he was in support of the ‘Brexit’ camp. Investors started selling Sterling hard following the announcement out of fear that Boris’ involvement could sway public opinion in favour of leaving the 29-nation bloc.
By Tuesday evening GBP/EUR was down one-and-a-half-cents and trading at a 16-month low in reaction to the big Boris ‘Brexit’ news.
Pound Consolidates Losses on ‘Brexit’ Concerns
On Wednesday IMF Chief Christine Lagarde stated that both Britain and the European Union would stand to lose if Britons voted to leave the bloc in June. However, it was Sterling that lost on the day, depreciating by around half a cent to strike another fresh 16-month low.
The Pound to Euro exchange rate remained flat, just above yearly lows, on Thursday but negative sentiment related to the referendum meant that Sterling failed to receive a lift in response to a decent GDP print. Fourth quarter growth was confirmed at 0.5%, making the UK the fastest growing G7 developed economy at the end of 2015.
GBP/EUR rebounded slightly over the weekend as inflation data out of the Eurozone came in weakly, suggesting that the European Central Bank will loosen policy further in March. German inflation slowed to zero, Spanish disinflation accelerated to -0.9% and French price pressures fell to -0.1%, which brought the headline Eurozone CPI back into negative territory at -0.2%.
Parity in Sight?
This week’s data is predicted to show that UK manufacturing output fell from 52.9 to 52.3 in February and that the services industry slowed from 55.6 to 55.1. The data is unlikely to have a massive impact on GBP/EUR unless it is subject to a wild deviation from the forecasts.
Analysts are now predicting that Sterling will weaken further against the Euro in the run-up to June’s EU referendum. It is estimated that GBP/EUR could slide to parity if the ‘OUT’ camp comes out on top but that the Pound could recover versus the single currency if Briton’s vote to maintain the status quo.
Heads Up
Summary of major upcoming data releases that we think may move the market.