The Pound to Euro exchange rate tumbled by around two cents last week to strike a new 16-month low south of 1.25.
‘Brexit’ Fears Persist
It was a slow start to week due to thin trading conditions during the Easter Holidays and GBP/EUR remained fairly flat above 1.27 through Tuesday as the Bank of England once again flagged the upcoming EU referendum as the biggest near-term threat to the domestic economy.
Sterling began to slide on Wednesday when German inflation rose unexpectedly from 0.0% to 0.3%.
GBP/EUR Strikes 16-Month Low
The Pound’s losses were exacerbated on Thursday as British GDP came in sturdily at 2.1%, beating forecasts of 1.9%, but sentiment was fraught by news that the current account deficit stretched to a record high of 7% of GDP in the final three months of last year. The dreadful deficit number marked the worst score since records began in 1948 and caused GBP/EUR to weaken by around half a cent.
Sterling tumbled further on Friday in response to a disappointing UK manufacturing report, which printed at 51.0. Although the March PMI marked a minor improvement on February’s 34-month low of 50.8 the lowly score underwhelmed forecasts of 51.2 and featured disappointing new orders from important export markets such as the Eurozone and the US. The downbeat domestic data took the Pound to Euro exchange rate below 1.25 to strike a new 16-month low.
Week Ahead
Looking ahead there appears to be two key ecostats on the calendar.
The most important is likely to be March’s UK service sector PMI, which is predicted to show an improvement in activity from 52.7 to 53.5. If the actual result matches the consensus then this could be enough to lift sentiment towards the Pound because Britain’s dominant service sector accounts for over 70% of total economic output.
The other key announcement is likely to be European Central Bank President Mario Draghi’s policy statement. The ECB chief recently loosened policy but shifted focus from the Euro exchange rate. If Draghi’s latest speech confirms this bias then the single currency is liable to appreciate, but if he attempts to talk down the Euro then GBP/EUR is likely to bounce higher.
Heads Up
Summary of major upcoming data releases that we think may move the market.