The Pound to Euro exchange rate remained fairly flat last week as robust UK ecostats compensated for a damaging leaked ‘Brexit’ memo.
Sterling slid below 1.15 last Tuesday in reaction to a supposed leaked memo suggesting that Britain currently has no overall ‘Brexit’ strategy. The report, which appeared in the Times but was ‘not recognised’ by Downing Street, indicated that PM Theresa May was dealing with issues on a case-by-case basis and was putting the stability of the Tory party above UK economic and business interests. The memo also suggested that an additional 30,000 civil servants would be required to implement the new laws during the divorce process.
But GBP/EUR rose back above 1.16 on Wednesday when UK unemployment struck a fresh 11-year low of 4.8% and Bank of England (BoE) policymaker Jon Cunliffe hinted that British interest rates could begin to rise over the next few years due to higher inflation as a consequence of Sterling’s recent depreciation and Donald Trump’s perceived reflationary policies.
Sterling surged through psychological resistance at 1.17 against the single currency on Thursday thanks to 14-year high UK retail sales growth of 7.6%. Euro sentiment was hurt by fears that populist nationalist parties could gain support in Europe following the shock victories for ‘Brexit’ and Trump. The fear is that an anti-EU party could win an election in the Eurozone and potentially bring about the collapse of the currency bloc.
And GBP/EUR rose swiftly to strike a two-month high on Monday afternoon when UK PM Theresa May hinted that she could seek a transitional ‘Brexit’ agreement to limit uncertainty for businesses.
The main event on the economic calendar this week is Chancellor Phillip Hammond’s Autumn Budget Statement on Wednesday. Hammond has stated that he will track back on his predecessor George Osborne’s plans to achieve a budget surplus by 2020, however, reports suggesting that ‘Brexit’ will leave a £100 billion black hole in the UK’s public finances mean that the Chancellor has little room to manoeuvre in terms of debt-backed fiscal stimulus. Subsequently, hopes of an early Christmas present from the Chancellor have been tempered and the Pound may struggle to catch a bid.
The other event to follow is the French Republican party Presidential candidate contest. Over the weekend former President Nicolas Sarkozy was defeated by Francois Fillon, which was interpreted as good news for the single currency because Sarkozy is seen as a divisive candidate who could push voters towards Marine Le Pen of the anti-EU National Front.
However, considering how inaccurate polling forecasts proved prior to ‘Brexit’ and Trump, market jitters related to a breakup of the Eurozone could easily weigh on the single currency over the next 6-12 months.
|Data Item||Market Expectation|
|22nd November GBP Public Sector Net Borrowing (Oct)||£6bn|
|23rd November EUR Markit PMI Manufacturing (Nov)PRELIMINARY||53.2|
|23rd November GBP UK Autumn Budget Statement|
|25th November GBP Gross Domestic Product (QoQ) (Q3)PRELIMINARY||0.50%|
|25th November GBP Gross Domestic Product (YoY) (Q3)PRELIMINARY||2.30%|
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