The Pound to Euro exchange rate weakened by over a cent last week to hit its lowest level in a nearly a month.
Sterling Softens On UK CPI Report
GBP/EUR rose by around 50 pips at the start of last week’s session but Sterling’s rally came to an abrupt end on Tuesday morning when UK inflation printed below the median market consensus. Analysts had been primed for a score of 0.7% but the data showed that price pressures remained at 0.6% in August, which was seen to give the Bank of England more license to consider cutting rates again in 2016. The Pound slumped by around a cent-and-a-half against the single currency following the report.
On Wednesday British nerves were soothed somewhat by a sturdy labour market report showing that UK unemployment remained at a decade-low of 4.9% in July. Wage growth slowed from 2.5% to 2.3% but the ecostat did little to undermine Sterling because analysts had feared a sharper slide to 2.1%.
Dovish BoE Weighs On Pound
However, Sterling ran into trouble on Thursday afternoon due to dovish comments from BoE Governor Mark Carney. The central bank chief left interest rates and QE schemes unchanged through September but hinted that further stimulus was likely this year. Carney suggested that the bank rate would probably be cut again in November, unless we were to see a significant uptick in domestic growth forecasts over the next two months. GBP/EUR tumbled towards 1.17 in reaction to the dovish outlook, despite the fact that Eurozone consumer prices remained extremely soft at 0.2%.
BoE easing bets continued to drive the Pound lower against the Euro on Friday as policymaker Kristin Forbes suggested that the bank was happy to let the domestic currency devalue in order to help reduce the national debt. GBP/EUR slid to a near-monthly low just above 1.16 in reaction to the remarks.
Week Ahead
This week’s European calendar looks remarkably quiet, which means that all moves in the currency market will likely be driven by events taking place in the United States.
The Federal Reserve is due to announce interest rates for September on Wednesday evening and, although markets only see a 12% chance of a rate hike at this juncture, the potential for volatility is notable. It is possible that the Fed Chairwoman Janet Yellen will use the platform to pave the way for a rate rise later on in the year, which could potentially put pressure on the Euro. This is because the single currency is usually more susceptible to risk aversion trends than Sterling.
Alternatively, we could see GBP/EUR stumble if the Fed fails to ignite November and December rate hike bets.