The Pound rose minimally against the Euro last week as Bank of England officials remained unanimously opposed to lowering interest rates.
UK Deficit Widens, Production Falls into Recession
GBP/EUR began last week’s session just above 1.26 and rallied towards 1.27 by the weekend. The pair traded flatly on Monday as European policymakers discussed plans to offer Greece debt relief on its mammoth public deficit.
Sterling ticked slightly higher on Tuesday in reaction to the latest UK trade balance report, which printed at -£11.2 billion compared to forecasts of -£11.5 billion. Although the data pointed to the worst first quarter trade deficit since 2008, the results were marginally better than economists had predicted and this bolstered the appeal of the Pound.
GBP/EUR tumbled on Wednesday as production data showed that the UK factory sector plunged into recession in Q1, with a contraction of -0.4%. This marked the third technical recession since the crisis of 2008 and suggests that British GDP growth may cool from 0.4% to 0.3% in the second quarter.
‘Super Thursday’ Lifts Pound
However, the Pound recovered on ‘Super Thursday’, as BoE policymakers voted unanimously against reducing interest rates in May. This warmed market sentiment following predictions that some officials would prefer to cut rates ahead of next month’s EU referendum. The BoE actually cut its forward-thinking inflation and growth forecasts but investors were more concerned with the interest rate vote and subsequently Sterling was able to appreciate following the report.
The Pound to Euro exchange rate strengthened again on Friday when Eurozone GDP was revised lower from 0.6% to 0.5%.
Week Ahead
This week’s dataset features key UK inflation, unemployment and retail data, as well as an important Eurozone consumer price index report.
With UK CPI set to remain at 0.5% and the Eurozone equivalent on track to hold steady at -0.2%, the advantage appears to be in Sterling’s court.
Additionally, British unemployment is anticipated to remain at 5.1%, retail sales are expected to rise from 1.8% to 2.0% and wage growth is tipped to have accelerated from 2.2% to 2.3%, which could send the Pound higher.
Heads Up
Summary of major upcoming data releases that we think may move the market.