The Pound traded below psychological resistance at 1.20 for the majority of last week’s session as decent UK inflation and labour market reports failed to give Sterling a material lift.
Pound Remains Soft Despite Sanguine Data
GBP/EUR ticked slightly higher last Monday in reaction to news that Japan’s Softbank had made a successful £24.3 billion bid to purchase UK technology firm ARM. Analysts noted that the huge depreciation of the Pound against the Japanese Yen in the aftermath of the ‘Brexit’ vote could have played a part in the deal, suggesting that other bargain hunter takeover bids could be launched over the net few months.
On Tuesday UK CPI printed at 0.5%, up from 0.3% previously and beating expectations of 0.4%. However, the figures did not boost demand for Sterling because most traders were of the impression that the Bank of England would ignore rising inflation over the next few months – likely a consequence of the weakening Pound making imports more expensive – and maintain a near-term easing bias. GBP/EUR sank below 1.19.
Wednesday saw better fortunes for Sterling as a sanguine BoE report showed that firms were suffering less in the immediate aftermath of the referendum than many analysts had predicted. Central bank official Kristin Forbes also bolstered Sterling’s appeal by urging policymakers to ‘keep calm and carry on’. GBP/EUR rose over 120 pips on the day, also helped by labour market data showing that UK unemployment unexpectedly hit a new 11-year low of 4.9% in May.
The Pound made some gains against the Euro on Thursday in response to Mario Draghi’s latest speech. The European Central Bank President left policy on hold in July but hinted that further stimulus could be implemented in September if additional ‘Brexit’ risks materialise in the currency bloc.
Dreadful PMI Data Sends Sterling Plunging
However, GBP/EUR slid back towards 1.19 on Friday as UK manufacturing and service sector PMI reports printed terribly. Both figures came in significantly lower than the 50.0 mark that separates growth from contraction, bringing the composite index of private sector activity down to a seven-year low of 47.7.
Sterling weakened further at the start of this week’s session as UK business confidence sank 42 points to a 2009 low of -47 and BoE policymaker Martin Weale announced that the dud PMI numbers had persuaded him to call for immediate easing to stimulate the slowing economy.
GDP Reports On Tap This Week
The biggest data releases to look out for this week are the UK GDP report on Wednesday and the Eurozone growth print on Friday.
The British report is tipped to show an acceleration of economic output from 0.4% to 0.5% in the second quarter. Although a decent reading is unlikely to boost demand for Sterling ahead of the BoE’s policy decision on August 4, a soft figure could pile even more pressure on the downtrodden Pound.
The Eurozone report is anticipated to show quarterly growth of around 0.6%, which shouldn’t have too much of an impact on GBP/EUR.
The pair is likely to trade below 1.20, possibly sliding towards 1.18 towards the end of the week.