The Pound to Euro exchange rate rallied by around 150 pips last week as sturdy post-‘Brexit’ data prompted some investors to conclude short Sterling positions, thus buying back into the UK currency.
GBP/EUR Hits 2-Week High
GBP/EUR rose 75 pips at the start of last week’s session to hit a fortnightly high close to the 1.17 mark as traders digested recent data showing that the labour market and the retail sector performed well in July. Across the Channel in the Eurozone consumer confidence tumbled from -7.7 to -8.5 and German private sector output cooled from 55.3 to 54.4.
Last Wednesday saw annualised Eurozone GDP confirmed at 1.8%, to little consequence on the currency markets. However, hope that the domestic economy may fare better than initially anticipated caused some traders to cut their Bank of England stimulus bets again, which led to a further 75 pips of gains for the Pound versus the single currency.
Sterling’s Rally Tops Out
Sterling’s optimistic performance came to an end on Thursday when GBP/EUR declined half a cent even though a UK retail report from the Confederation of British Industry (CBI) showed that sales volumes rebounded from -14 to +9 in August. The Pound’s gains at the beginning of the week always looked to be based on fragile foundations and it seems traders were not keen to build on them further.
GBP/EUR traded fairly flatly through the end of the week and the Bank Holiday weekend as investors reacted to a report from the Office for National Statistics (ONS) confirming market expectations of 0.6% GDP growth in the second quarter.
Data Points to Euro Gains This Week
The main events to look out for on the economic calendar this week are the Eurozone labour market report, Eurozone CPI print and the British manufacturing and construction PMIs.
Unemployment in the currency bloc is tipped to have fallen from a mighty 10.1% to a slightly less depressing 10.0% in August, while Eurozone consumer prices are expected to have risen from 0.2% to 0.3%. Markets currently anticipate a 36% chance of a 10 basis point rate cut from the European Central Bank by the end of the year and the probability may be reduced if jobs market gains and inflation jumps are forthcoming.
The UK PMI reports are both forecast to remain in the red, which means that GBP/EUR could find itself sliding slightly lower over the course of the week.