French election jitters allowed Sterling to reach its highest level in almost two months against the Euro at the start of this week’s trading session.
Sanguine CPI & Unemployment Data Boosts Pound
The Pound strengthened by around half a cent versus the single currency last week in response to sturdy UK inflation and labour market figures. March’s consumer price index remained at a three-year high of 2.3%, and CPI could rise again in April if traditional Easter air fare hikes play their part (in 2016 plane tickets jumped 22.9% over the Easter period).
The British unemployment rate also held steady, at a joint-41-year low of 4.7%, thanks to a 39,000 increase in job creation. Average earnings rose from 2.2% to 2.3%, which exceeded analysts’ expectations and supported demand for Sterling.
French Election Jitters Drag Euro Lower
Sterling maintained a strong performance versus the single currency through the Easter weekend as traders fretted over the potential for an anti-EU candidate to emerge victorious in the upcoming French Presidential elections.
Two out of the four favourites (far-right Marine Le Pen and hard-left Jean-Luc Melenchon) would like to materially alter Britain’s relationship with the EU. Although centrist Emmanuel Macron is seen as the most likely eventual winner, traders are mindful that pollsters were proven wrong following last year’s Brexit and US election votes, which has put additional pressure on the Euro.
Week Ahead
What looked to be a quiet week for the Pound was turned on its head on Tuesday morning when UK Prime Minister Theresa May called an early general election, to be held on June 8. Sterling soared higher by around a cent against the single currency on the news, with markets betting on a strong Conservative majority that would strengthen the British government’s hand in the Brexit negotiations.
Economic releases to look out for this week include Eurozone inflation data, which is tipped to remain at 1.5%, UK retail sales numbers, expected to see output slow from 4.1% to 3.8%, and two speeches from Bank of England Governor Mark Carney, which could give clues on monetary policy.
But with British and French elections in focus, there is scope for unexpected volatility in GBP/EUR this week.