The Pound to Euro exchange rate rallied by around two cents to strike a three-and-a-half-month high last week in reaction to a reduction in ‘Brexit’ bets.
Soft CPI Dents Sterling Appeal
Sterling started last week’s session just below the 1.27 mark before rallying in anticipation of a sturdy UK inflation print. However, demand for the Pound cooled slightly following the consumer price index report, which saw price pressures decelerate unexpectedly from 0.5% to 0.3% in April. A huge -14% drop in airfares, as firms adjusted prices following the Easter Holidays, was blamed for the fall and subsequently the Pound managed to avoid any steep losses versus the single currency.
Sterling Parties on Wednesday
The Pound performed massively well on Wednesday, appreciating over 200 pips to 1.30, as markets reacted to polling data from IPSOS MORI. The opinion poll gave the remain camp an 18-point 55% to 37% lead over the leave campaign, which prompted many investors to adjust their ‘Brexit’ bets.
A separate report showed that British unemployment remained at 5.1% while wage growth inched up from 1.9% to 1.7%. European data detailed that price pressures in the Eurozone shrank a further -0.2% last month.
Sterling put in another decent performance on Thursday, rallying to a three-and-a-half-month high against the Euro as upbeat ‘Brexit’ sentiment continued to support the Pound. GBP/EUR was also boosted by news that British retail sales advanced 4.2% in April, which more than doubled economists’ forecasts of a 2.0% rise.
Profit-taking Tempers GBP/EUR Gains
After smashing through psychological resistance at 1.30 earlier in the week, investors took advantage of the three-and-a-half-month high Pound to Euro exchange rate on Friday and locked in profit to bring GBP/EUR back down to 1.29. The Euro was also helped by remarks from European Central Bank policymaker Benoit Coeuré suggesting that the ECB has no plans to cut deposit rates again at this juncture.
Week Ahead
There is only really one major economic release on the calendar this week and that is tipped to confirm that UK GDP expanded 0.4% in the first quarter of the year. Barring an unexpectedly weak or strong figure, the print is unlikely to have much of an impact on GBP/EUR.
Subsequently, trading patters are likely to be dictated by ‘Brexit’ sentiment. If polling data continues to give the remain camp a strong lead then Sterling should remain ahead. If public opinion begins to swing in favour of exiting the EU then the Pound could easily depreciate.
Heads Up
Summary of major upcoming data releases that we think may move the market.