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GBP/EUR Flat On Neutral BoE

Posted by on December 19th, 2016. Connect with us on .

GBPEUR Exchange Rate

The Pound to Euro exchange rate remained capped by psychological resistance at 1.20 last week as the Bank of England refrained from hawkish rhetoric.

British Inflation Strikes Two-Year High

Sterling strengthened against the single currency last Tuesday when UK CPI data printed at its highest level for two years. Rising unexpectedly from 0.9% to 1.2%, the consumer price index appears on course to surpass the Bank of England’s 2.0% target over the next 12 months. The post-Brexit Sterling depreciation is eating into importers’ profits and prompting retailers to hike their prices, which could stymie UK consumer spending and economic growth – but is seen as a bullish signal for the Pound because it may persuade the BoE to start tightening policy.

On Wednesday it was reported that the UK unemployment rate held steady at an 11-year low of 4.8% in October, but GBP/EUR remained flat due to concerns that the British labour market may be beginning to slow. The total number of people in work fell by -6,000, while -55,000 full-time positions were lost.

BoE Disappoints

Sterling struggled to make any inroads versus the Euro in the tail end of last week’s session, with traders disappointed by the lack of hawkish conviction in the BoE’s December statement. Threadneedle Street left rates and QE on hold, as expected, but markets had hoped that the recent surge in inflation expectations would trickle through to a shift in rhetoric. However, policymakers noted that on a trade-weighted basis Sterling has recovered 6% from its October lows. The BoE cited this mini revival when suggesting that rates would remain flat for the foreseeable future.

Week Ahead

There is little data related to the British or Eurozone economies due for release this week, so trading patterns will likely remain neutral unless we are treated to any unexpected Brexit revelations.

GBP/EUR could easily trade within a one-cent radius of the 1.19 mark for the majority of the week.

Data Item Market Expectation
21st December GBP Public Sector Net Borrowing (Pounds) (NOV) 11.6bn
21st December EUR Euro-Zone Consumer Confidence (DEC A) -6
23rd December GBP Gross Domestic Product (YoY) (3Q F) 2.30%
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