Sterling lost its way against the Euro last week, declining by over three cents as opinion polls suggested that this month’s EU vote could be tighter than previously estimated.
‘Brexit’ Bets Send Sterling Spiraling Lower
GBP/EUR began last week’s session just below the 1.32 mark, buoyed by a slew of opinion polls that put the ‘Remain’ camp well ahead of the ‘Brexit’ campaign.
However, the Pound suffered heavy losses on Tuesday afternoon, falling all the way to 1.30, in response to an ICM telephone poll showing that 45% of respondents plan to vote to leave the EU, compared to just 42% who want to remain. The opinion poll shocked investors and led to a negative turnaround in fortunes for Sterling. Across the channel: Eurozone unemployment printed at 10.2% as expected and Eurozone CPI rose from -0.2% to a still dreadful -0.1%.
‘Brexit’ bets continued to rise on Wednesday as another poll put the ‘Remain’ and ‘Brexit’ camps neck-and-neck. Subsequently, betting firm Betfair upped its probability of a British exit from 17% to 26%. UK manufacturing beat expectations of 49.6 with a score of 50.1 but Sterling still slid through psychological resistance towards 1.29 against the single currency.
ECB Easing Prospects Weigh on Euro
The Pound clawed back some of its losses on Thursday in response to warnings from the European Central Bank that QE could be prolonged past the current March 2017 expiration date. ECB President Mario Draghi left monetary policy on hold and raised the bank’s 2016 GDP forecasts but the Euro weakened in response to the hints regarding additional QE.
However, Sterling’s miserable week against the single currency was completed on Friday afternoon when a dreadful US jobs report sent the Euro soaring against the US Dollar, which in turn propelled the single currency higher against the Pound. GBP/EUR finished the week at its lowest level for around three weeks.
Week Ahead
Without many significant releases on the economic calendar to look out for, it seems that traders will be looking to the pollsters to gauge EU sentiment this week when deciding how to trade GBP/EUR.
Reports from ICM and YouGov this morning, showing that support for the ‘Brexit’ campaign is growing, dragged the Pound to Euro exchange rate lower. But Sterling could recover if sentiment sways in favour of maintaining the status quo.
Another important event to look out for is this afternoon’s speech from Federal Reserve policymaker Janet Yellen. The Euro rallied when Fed rate hike bets declined on Friday, so it stands to reason that the single currency could give back some of its gains if the Fed chief strikes a hawkish tone. Conversely, a dovish message could pave the way to additional Euro strength.
Heads Up
Summary of major upcoming data releases that we think may move the market.