The Pound to Euro exchange rate rose by around a cent last week as the UK Supreme Court ruled that parliament needs to ratify Brexit before the government can trigger Article 50 of the Lisbon Treaty.
Investors Focus On Brexit Ruling
Sterling increased in value against the single currency at the beginning of last week’s session thanks to optimism regarding the Supreme Court judgement. However, demand tailed off following the announcement because the ruling did not state that devolved assemblies in Scotland and Northern Ireland (where support for Brexit is thin) would get the chance to vote. This detail was seen to pave the way for UK Prime Minister Theresa May to trigger Article 50 in March because opposition leader Jeremy Corbyn has ordered Labour MPs to vote in favour of Brexit.
US Trade Talks Boost Pound
GBP/EUR jumped to a three-week high of just below 1.18 on Wednesday as Sterling demand was rejuvenated by news that UK PM May was planning to meet US President Donald Trump over the weekend to discuss a future UK-US trade deal.
The Pound rallied again on Thursday thanks to some better-than-anticipated UK GDP data showing that the British economy grew at a pace of 0.6% in the fourth quarter. The sanguine result was largely thanks to robust service sector output and resilient consumer spending levels. Immediately after the EU referendum analysts had predicted that Britain would enter a recession by the end of the year, but the sturdy figures show that forecasts of an economic downturn in 2017 could also be proved inaccurate and this boosted the appeal of the Pound.
Week Ahead
Having struck three-week highs in the region of 1.18, GBP/EUR slid below 1.17 over the weekend as UK sentiment soured.
There are a number of significant ecostats on the calendar this week – Eurozone unemployment, inflation and GDP – but the two standout announcements look to be the Bank of England’s policy decision on Thursday and the UK service sector print on Friday.
The potential exists for Sterling to give back some of its recent gains against the single currency if the BoE opts to strike a cautionary tone during its ‘Super Thursday’ policy statement. Despite expectations of higher inflation in 2017, growth is tipped to slow and most investors believe that the UK central bank will leave rates at record lows. Any hints to this effect could easily drag on GBP/EUR.
January’s UK service sector print is expected to slow from 56.2 to 55.8, which could also weigh on the Pound.