GBP/EUR Hits 3-Year Low
The Pound to Euro exchange rate struck a three-year low at the start of last week’s session as record low bond yields combined with the threat of further BoE stimulus deterred traders from investing in Sterling.
However, demand for the UK currency was buffeted higher on Tuesday morning when British inflation data showed that consumer prices rose unexpectedly from 0.5% to a 20-month high of 0.6% in July. The Office for National Statistics (ONS) noted that there was no ‘obvious impact’ from the ‘Brexit’ vote, however, a separate report detailed how the devaluation of Sterling had pushed producer prices to their highest level in over two years last month.
GBP/EUR traded fairly flatly on Wednesday as UK unemployment printed at a joint-11-year low of 4.9%. In June Sentiment was lifted by a 2.4% acceleration in wage growth and a surprise -8,600 dip in the number of people filing new claims for jobless benefits in July. Traders were cheered by the drop in claims – especially so because this was the first piece of post-‘Brexit’ news related to the labour market – but the upbeat figure was not enough to lift Sterling versus the single currency.
Robust Retail Print Boosts Pound
The Pound rallied by around a cent against the Euro on Thursday thanks to a sanguine retail report from the ONS indicating that sales volumes jumped 1.5% in July, smashing expectations of -0.1%. Having largely overlooked the week’s previous positive prints, traders were compelled to send Sterling higher following the robust retail report because consumer spending accounts for over 60% of the UK economy. If consumer sentiment remains sturdy for the rest of the year there is every chance that the UK may avoid falling into the recession that many forecasters are writing about.
Sterling’s rally was cut short on Friday, however, when a story was published on Bloomberg suggesting that the government was planning to start the two-year EU exit process before April of next year. Although Prime Minister Theresa May distanced herself from the report, traders sold the Pound on concerns that an earlier-than-expected invocation of Article 50 of the Lisbon Treaty would reduce institutions’ ability to insulate the potential economic shock of ‘Brexit’.
Quiet Week Ahead
There are only a few economic releases on the calendar this week relating to GBP/EUR. The single currency will likely not respond with any significant sensitivity to Tuesday’s set of Eurozone PMI numbers, nor to Thursday’s German IFO economic sentiment figures. The only UK data print to look out for is Friday’s second quarter growth revision, which is likely to see quarterly GDP confirmed at 0.6%.
The lack of fresh data means that GBP/EUR may continue to hover just above the three-year low it struck last week.