Buoyed by a High Court ruling on ‘Brexit’, Sterling managed to rally by over a cent versus the Euro last week.
The Pound strengthened by around 60 pips versus the single currency last Monday thanks to an announcement from Bank of England (BoE) Governor Mark Carney stating that he would remain in the post until 2019 – 12 months longer than initially planned but 36 months less than the maximum term of eight years. Sterling demand increased following the announcement because there had been fears that political pressure from some government officials could have forced Carney to stand down much earlier-than-anticipated. Had this been the case the BoE’s independence would have been seriously undermined and Sterling could have slid into another crisis.
However, GBP/EUR softened on Tuesday as the Carney bounce wore off and EUR/USD strength dragged the single currency higher.
On Wednesday German unemployment printed at 6.0%, down from 6.1%, and UK construction output came in at a seven-month high of 52.6. The two upbeat ecostats meant that the Pound barely moved an inch versus the Euro.
The Pound to Euro exchange rate jumped by over a cent on Thursday to hit a monthly high as investors reacted to news that Britain’s High Court had ruled that Prime Minister Theresa May would not be able to trigger Article 50 of the Lisbon Treaty without parliamentary approval. Although most analysts do not expect MPs to vote against leaving the European Union following the referendum result, the ruling means that ‘Brexit’ could be delayed and Downing Street may be persuaded to take a softer approach to trade talks. Indeed, the hope of retaining access to the single market is the primary reason behind Sterling’s rise following the ruling.
Also on Thursday, although largely overshadowed by the High Court announcement, the BoE left interest rates on hold and upped its forecasts for growth and inflation. The statement was less dovish than forecast and saw Governor Carney admit that monetary policy could now move in ‘either direction’, suggesting that the bank does not plan to cut rates again anytime soon.
There are a couple of European ecostats due for release this week – UK industrial production and German inflation – but the main event risk is likely to be the US Presidential election.
A victory for market-friendly Democratic candidate Hillary Clinton, which looks more likely following news that the FBI has once again cleared Clinton of any criminal wrongdoing related to her use of private email servers, would likely drive the US Dollar higher against the Euro and therefore drag the single currency lower against the Pound.
Meanwhile a victory for controversial Republican candidate Donald Trump could spark global risk aversion trends, thus weakening Sterling versus the Euro.
|Data Item||Market Expectation|
|8th November GBP Industrial Production (YoY) (SEP) Medium 0.7%||0.70%|
|8th November USD US Presidential Elections (All Day)|
|9th November GBP Visible Trade Balance (Pounds) (SEP)||-£12.1b|
|11th November EUR German Consumer Price Index (YoY) (OCT F)||0.80%|
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