The Pound rebounded slightly against the Euro last week, having initially hit a new eight-year low.
Brexit Fears Send GBP/EUR to 8-Year Low
Sterling slid to a fresh eight-year low against the single currency last Tuesday as Brexit anxieties intensified following concerning remarks from EU officials.
Chief Brexit negotiator Michel Barnier told Britain to ‘start negotiating seriously’, while European Commission President Jean Claude Juncker blasted Britain for leaving ‘huge numbers of questions’ unanswered in its latest government Brexit papers.
The Pound tumbled following the comments due to growing fears that the UK might fail to agree on a transitional trade deal before crashing out of the European Union in March 2019.
The Euro was also boosted by a 16-year high German consumer confidence print of 10.9 and a sturdy French second quarter GDP score of 0.5%, which suggested Brexit concerns were not so impactful across the Channel.
Rising Eurozone CPI Boosts Euro
The Pound lost more ground to the Euro on Thursday when Eurozone inflation printed at 1.5% for August, up from 1.3% in July. The better-than-anticipated figure was seen to support hopes of some form of monetary tightening from the European Central Bank.
However, dark mutterings suggested that some ECB policymakers were considering holding off on raising interest rates or tapering QE due to the Euro’s meteoric rise in the last few months. Indeed, GBP/EUR is over 10 cents lower than it was midway through May.
Upbeat UK Manufacturing PMI Helps Sterling Rebound
Sterling mounted a minor rebound on Friday following data showing that British manufacturing output accelerated in August. The score of 56.9 smashed forecasts of 55.0 and helped send GBP/EUR higher.
Week Ahead
There are two events that immediately stand out on the economic calendar this week: the UK services PMI and the ECB policy statement.
We could see the Pound increase in demand if the dominant service sector PMI comes in positively. Analysts are primed for a score of 53.5 but anything above 54.0 could give Sterling a shot in the arm.
However, more volatility is expected around the ECB statement. We could see the Euro soften if President Mario Draghi focusses on the Euro’s recent appreciation, which, compared to the bank’s previous estimates, could knock off -0.5% from headline inflation.
On the other hand, if Draghi avoids talk of the exchange rate the single currency could easily strengthen. And if Draghi announces a tapering of asset purchases the GBP/EUR could plunge to fresh eight-year lows.