The Pound to Euro exchange rate rebounded two cents last week having previously struck its lowest level for nearly two years.
Strong Start For GBP/EUR
GBP/EUR rallied from just under 1.24 to almost 1.25 last Monday as investors reacted positively to news of a deal to keep Tata Steel afloat and prevent the loss of thousands of British jobs.
Sterling ticked through the psychologically significant 1.25 mark on Tuesday as British CPI printed at a 15-month high of 0.5%. The surge in consumer prices beat expectations of 0.4% and gave analysts a little bit of hope that rates could start to rise towards the end of the year if price pressures continue to build.
However, Bank of England rate hike bets were dealt a blow during the afternoon when the ICM’s latest EU referendum opinion poll gave the LEAVE camp a 45% to 42% lead over the REMAIN camp. BoE policymakers have commented that a ‘Brexit’ scenario would likely lead to additional stimulus, including lower interest rates.
BoE Holds Rates for 85th Month
GBP/EUR rallied by around half a cent on Wednesday as Eurozone industrial production shrank -0.7% before declining by around a third of a cent on Thursday as inflation in the currency bloc rose unexpectedly from -0.2% to zero. The BoE’s decision to leave rates on hold for the 85th month in a row had little impact on Sterling to Euro trading.
The Pound to Euro exchange rate remained above resistance at 1.25 on Friday as demand for the single currency was hampered by a dovish statement from European Central Bank President Mario Draghi. The ECB Chief said that interest rates would likely remain at the current level, or lower, until the end of the asset purchasing scheme, which is currently due to expire in March 2017 but could easily be extended at future meetings.
Week Ahead
The main events to look out for this week are the UK labour market report and the ECB’s policy decision.
British unemployment is tipped to remain at 5.1%, jobless claims are predicted to fall -10,000 and average weekly earnings are forecast to accelerate from 2.1% to 2.3%. Of the three, the rise in wage growth is probably the most pertinent and we could see GBP/EUR tick higher if the figure matches forecasts.
The ECB is unlikely to alter monetary policy so soon after announcing new stimulus in March, but traders will be looking to President Draghi’s statement for clues as to what the bank intends to implement over the next few months. Any dovish rhetoric will likely weigh on the Euro.
Heads Up
Summary of major upcoming data releases that we think may move the market.