The Pound to Euro exchange rate tumbled nearly three cents last week to strike its lowest level in three years as dovish Bank of England (BoE) easing expectations weighed on demand.
Dovish BoE Weighs on Sterling
GBP/EUR began sliding from 1.18 last Monday as data from the Eurozone came in stronger-than-anticipated; German industrial production rebounded from a -0.4% contraction to grow 0.5% and investor confidence printed at 4.2, overshooting forecasts of 3.0.
Tuesday saw Sterling dip further in reaction to comments from BoE policymaker Ian McCafferty confirming that the central bank intends to loosen monetary policy further if economic growth continues to cool in line with policymakers’ expectations. The Pound was also hurt by news that Britain’s trade deficit widened from £11.5 billion to £12.5 billion in June.
BoE stimulus bets brought UK Gilt yields down to record lows on Wednesday as pension funds snapped up government debt in anticipation that additional quantitative easing measures would weigh on yield returns in the future. Conversely, international investors and currency speculators sold Sterling-denominated assets due to the belief that historic low yield returns would be reduced even further over time. GBP/EUR skidded to a monthly low of 1.16.
Sterling Worst Performing Currency of 2016
The Pound plunged further on Thursday in reaction to a report from the Royal Institute of Chartered Surveyors (RICS) indicating that house price growth decelerated to a three-year low following the ‘Brexit’ referendum in June.
Sterling struck a new three-year low against the single currency on Friday as another day of declines confirmed the Pound as the world’s worst performing major currency so far in 2016. Coming out of the weekend GBP/EUR hovered just above 1.15.
Post-‘Brexit’ Data on Tap
This week’s trading session is likely to be dominated by a stream of post-‘Brexit’ UK data which should illuminate how well / poorly the domestic economy has performed since the historic referendum result was released.
Tuesday’s consumer price index report is tipped to see inflation remain at 0.5%, while Wednesday’s unemployment rate is predicted to remain sturdy at just 4.9%.
The most important indicator, however, is Thursday’s UK retail sales report because this will examine how the general public has responded to the vote. If consumer spending remains robust over the next few months then it stands to reason that Britain may avoid falling into recession, but if retailers register negative growth then the economy is liable to suffer. Thursday’s report is forecast to see a 0.1% monthly increase in sales volumes; anything lower could depress GBP/EUR, while anything higher could give Sterling a much-needed boost.