After a remarkable bounce last week, Sterling’s exchange rate against Euro has already taken a dive at the start of this week. Following a strong ending that pushed GBPEUR from 1.12 to 1.14 last Friday, Pound is trading below 1.13 Euros this morning. Meanwhile, Euro is climbing on Tuesday after a minor pause in its rally against the US dollar the previous week.
After a slow start, Sterling had a positive week against Euro and gained 1% last week, most notably close to the week’s end. Yet, GBP has already given up those gains by Tuesday at the time of writing following the inflation data release that saw CPI measure of inflation growing by 2.6%, missing the 2.9% figure forecast.
This reaction from Sterling is proving wrong those analysts, who bet on a upside continuation for the next few days based on the three strong bullish candlesticks that were printed by last Friday. Although that pattern is indeed considered a very bullish one, we cannot ignore that GBPEUR rested at 1.12, well below the support level at 1.13 that we have mentioned numerous times in our past analyses.
Still, mixed reports are coming from various analysts, who seem divided trying to predict Sterling’s next move. Despite the fall to 1.12 and the forecast-missed CPI inflation report, analysts in Nomura Securities expect Pound to actually gain in the coming months and anticipate an interest rate hike by the Bank of England in August. JPMorgan and Credit Agricole on the other hand put their money on Euro to appreciate against both Sterling and Dollar.
As key market participants are seemingly undecided of what lies ahead, European and UK entrepreneurs and investors are confused of which currency they should trust. Although UK appears to be headed towards a softer Brexit, Sterling isn’t that appealing to foreign investments due to persistent political instability and economy’s deterioration. Euro’s 6-month rally is certainly impressive and falls in line with strong Eurozone ecodata, yet European Central Bank has yet to raise interest rates or talk of a policy change in regards to its QE programme.
That may change though come this Thursday when a tweak in the tone is expected in the ECB rate meeting. No rate change is expected by the market, but certain conditions may be mentioned regarding the asset purchasing program by the ECB, specifically that the QE can only be increased in duration now, but not in size. Should that language be used, Euro’s rally will accelerate, but if the tone remains dovish, the rally might halt. On the very same day Pound will also impacted by UK Retail Sales report, so we expect most volatility this Thursday. If it’s another miss for the UK economy, GBPEUR may well end up to 1.12 or even lower, especially if Euro strengthens following the ECB meeting.
Euro enjoyed minor gains against the US dollar last week but the current week is already looking very promising for EURUSD as it is hitting new 12-month highs on Tuesday!
Eurozone’s core inflation figure came at 1.3% as anticipated, while German ZEW economic sentiment remained optimistic this Tuesday, although missed the forecasts by economists. No other major economic report is scheduled until Friday, so all eyes will be on ECB press conference on Thursday.