The Pound rallied by around a cent versus the Euro to strike a two-week high last week as government officials appeared to ever-so-slightly soften their approach to Britain’s post-‘Brexit’ trade arrangement with the European Union.
MPs To Vote On ‘Brexit’ Deal
Sterling strengthened by around 120 pips last Tuesday in response to a statement from a High Court lawyer suggesting that British MPs would have the chance to vote against the government’s ‘Brexit’ deal if it was considered to pose excessive risks to the UK economy.
Data showed that British consumer prices rose from 0.6% to a two-year high of 1.0% in September. Although the higher-than-expected CPI print could deter the Bank of England from slashing interest rates again, the impending trend of rising price pressures is unlikely to do Sterling any favours because it is likely to impact consumer purchasing power and depress retail spending.
GBP/EUR retained its Tuesday gains and hit a fortnightly high on Wednesday as UK unemployment remained at an 11-year low of 4.9% and the Chancellor struck a slightly softer tone on ‘Brexit’. In contrast to previous statements from government ministers, which had suggested that Britain would do whatever it takes to gain stricter controls on immigration, Phillip Hammond said that the government would be seeking the best possible access to the EU single market. Hammond also noted he was confident that the ‘deeply pragmatic’ people at the EU would help to forge a mutually beneficial deal.
ECB To Outline Stimulus Plans In December
The European Central Bank left its benchmark interest rate on hold at 0.00% on Thursday and maintained its negative deposit rate of -0.40%. ECB Chief Mario Draghi struck a neutral tone, stating policymakers had not discussed extending the bank’s QE scheme past its projected conclusion in March 2017, nor had they talked about tapering the expansive easing scheme early.
GBP/EUR was hit by volatility during the press conference, which shows that there will probably be large moves following December’s meeting, which Draghi suggested would feature further indications as to the future direction of policy. Although there has been talk of an early taper, the most likely scenario will see the ECB leave policy on hold but announce an extension to the March 2017 deadline. This could soften the appeal of the single currency, but in the long run we can expect the Euro to appreciate by over 5% if and when the ECB does announce plans to wind down its quantitative easing programme.
Week Ahead
The main event to look out for this week is the first estimate of UK third quarter GDP growth, released on Thursday morning. The report is tipped to show that quarterly growth slowed from 0.7% to 0.3%, while the annualised figure is anticipated to hold steady at 2.1%. A stronger-than-anticipated showing could bolster the Pound’s appeal temporarily, while a weak number could lead to another spiral lower for GBP/EUR.