The Pound to Euro exchange rate leaped higher by around three cents last week to strike its highest level in 40 days, as investors toned down their bets for Britain voting to leave the EU.
UK Wage Growth Slows
Sterling started rising from 1.25 to 1.26 at the beginning of last week’s session as traders geared up for an encouraging UK labour market report.
However, the jobs data disappointed and GBP/EUR remained close to the 1.26 mark on Wednesday. Unemployment printed inline with market forecasts at 5.1% but average earnings slowed from 2.1% to 1.8%. Analysts had been hoping for an uptick in wage growth to 2.3%, which could have helped drive rate hike expectations higher and so subsequently the Pound’s rally was halted.
GBP/EUR remained fairly flat again on Thursday as UK retail sales slumped -1.3% and Mario Draghi struck a slightly dovish tone during his ECB policy statement. The European Central Bank President noted that rates would remain at the current record low or lower until the expiration of the bank’s expansive QE scheme. The ECB’s asset purchases are currently scheduled to go on until March 2017 but markets are primed for a prolongation of the stimulus measures. The negative nature of the UK retail report was largely equalled by the dovish ECB statement.
Friday saw the Pound roar to life as investors reacted to a report from Number Crunching Politics (NCP) showing just a 20% chance of a ‘Brexit’ at June’s EU referendum. The EU optimism was compounding by US President Barack Obama’s assertion over the weekend that Britain would have to wait ten years to agree on a new trade deal with the US were it to vote to leave the European Union. Analysts said the comments were likely to help sway undecided voters to vote to remain.
The Pound to Euro exchange rate soared by around two cents to a 40-day high above 1.28 as ‘Brexit’ bets decreased.
Week Ahead
As we stand the Pound is around 300 pips higher than it was at the start of last week’s session and is trading at its highest level since the middle of March. There is potential for Sterling to rally further if data prints come in positively this week but there is also scope for the Pound to weaken.
The headline event is Wednesday’s first quarter UK GDP report. Growth is tipped to have slowed from 0.6% to 0.4% in the first three months of the year, which could temper optimism towards the Pound. Anything below 0.4% could easily prompt a selloff in Sterling.
The other important report is Friday’s Eurozone GDP report, which is predicted to show a rise from 0.3% to 0.4% in Q1. A score of this nature is liable to boost the single currency but anything lower could weigh.
Heads Up
Summary of major upcoming data releases that we think may move the market.