The Pound recovered from an eight-month low versus the Euro last week, rallying mildly despite another soft British growth print.
GBP/EUR Exchange Rate Rebounds from 8-Month Low
Sterling drifted higher at the beginning of last week’s session as traders locked in profit from the eight-month low GBP/EUR exchange rate.
Data out of the currency bloc showed that private sector output decelerated from 56.3 to a six-month low of 55.8 in June, however, the relatively high figure still pointed to quarterly growth of around 0.6% in the Eurozone.
Sterling Survives Soft UK GDP Report
The much-awaited second quarter UK GDP report showed that British growth inched higher from 0.2% to 0.3% between April and June. Unsurprisingly, it was the dominant service sector that drove the growth figure, with an expansion of 0.5%, compared to contractions of -0.4% and -0.9% in industrial production and construction, respectively.
The fact that production shrank in Q2 suggests that manufacturing exports are not enjoying a boost in competitiveness from Sterling’s 15%-20% post-Brexit depreciation.
Demand for the Pound remained flat following the figure as it was not seen as strong enough to alter the Bank of England’s rate hike projections.
Sterling did catch a bid on Thursday, when the Confederation of British Industry’s retail sales index jumped from +12 to a three-month high of +22. The Pound rallied by around 75 pips versus the single currency but subsequently gave up those gains after running into technical resistance.
GBP/EUR Forecast for the Week Ahead
Already this week GBP/EUR has traded flatly through an eight-year low Eurozone unemployment rate print and a 1.3% CPI score for the currency bloc. But there are many more potentially market-moving releases on the schedule.
A trio of British private sector PMI reports are predicted to show little change in July from June’s moderate expansions. However, any surprises, especially to the service sector score, could buffet demand. A stronger reading could bolster Sterling’s appeal, while a soft result could weigh.
In the Eurozone growth is tipped to remain at 0.6% in the second quarter, which could benefit the Euro as this would represent double the growth rate of the United Kingdom.
The most important event to keep an eye on, however, is the Bank of England’s interest rate decision on Thursday. The BoE is widely predicted to leave rates and asset purchases on hold, but the bank’s quarterly inflation report will certainly be scrutinised for clues on the future path of rates.
Investors are currently primed for a 6-2 vote against raising rates in August, meaning that Sterling could rally if more than two policymakers side with the hawks. Governor Mark Carney’s statement could also prove pivotal if he indicates that a rate rise is on the table in the foreseeable future.