- Euro Pound Climbs to 0.8810 – Pound Euro Slides to 1.1348
- Eurozone Inflation Hits its Mark – Euro Strengthens
- BoE Carney Speech Imminent – Pound Winds Back in Anticipation
The Euro Pound exchange rate climbed this morning as Sterling traders inched backwards from last week’s bets on a near-term Bank of England (BoE) rate hike. This skittishness is, in part, due to the imminent speech from bank Governor Mark Carney and the Eurozone’s strong inflation figures.
The Pound soared last week to its strongest levels since the Brexit vote after BoE policymaker Gertjan Vlieghe took a surprisingly hawkish tone, stating that the time for a rate hike was nearing.
Beyond this, news that the headline UK inflation figure beat expectations by printing at 2.9%, up from the 2.8% expected and the previous period’s 2.7% also added fuel to the fire regarding the possibility of a November rate hike.
Some traders, however, are not convinced. Viraj Patel from ING expressed his doubt:
‘Any BoE-fuelled sterling rally may be on its last legs; what we have defined as a withdrawal of stimulus hiking cycle is now priced into the currency. Anything more would be an overshoot in our view and we therefore expect Governor Carney’s speech at the IMF (International Monetary Fund) today to acutely manage market expectations’.
This is, in essence, the crux of investor hesitance today; the possibility that Carney will attempt to manage the recent surge in expectations thus driving Sterling down.
Carney is due to speak at 15:00 GMT today.
Eurozone Inflation Hits its Mark – EUR Bolstered
The Eurozone’s headline year-on-year inflation rate for August printed at 1.5% this morning (its highest level in four months) up from the previous period’s 1.3% and on-par with the forecast.
The month-on-month inflation figure also proved positive, demonstrating a 0.3% increase in August compared to July.
The jump in both of these figures was predominantly caused by a boost in energy prices, which climbed 4% on the year and 0.7% month-on-month. Service sector prices also contributed by ascending 1.6% higher in August on the year.
Whilst this news was indeed good for the Euro Pound exchange rate, the Eurozone’s inflation rate remains well below the European Central Bank’s (ECB) target and, with markets currently still digesting news that a near-term rate hike might be possible from the BoE, the extent that the Euro will capitalise is questionable.
EUR GBP Forecast: Central Banker Speeches on the Cards Today
With the Eurozone inflation figures out of the way that leaves BoE Carney’s speech at the IMF in Washington and ECB Exec Lautenschlaeger’s speech in Basel as the two remaining relevant data points today for this pairing.
Markets will be carefully assessing Lautenschlaeger’s speech for any indication regarding the recently hyped tapering of the ECB’s quantitative easing (QE) scheme. If Lautenschlaeger does indeed offer further indication that it will begin in October then the Euro Pound exchange rate will surely claw back some of last week’s losses.
As previously mentioned, markets currently expect Carney to try and manage the Pound’s surge, which will likely take the form of some cautionary ‘dovish’ statements. If this occurs then EUR GBP will fall even further.
Tomorrow will feature Eurozone current account figures for July, as well as the German and Euro-area ZEW economic surveys, with economic sentiment in Germany expected to jump from a score of 10 to 12.
Wednesday will feature UK retail sales which are forecast to slow year-on-year in August from 1.5% to 1.4%. Thursday; BBA loans for house purchases, public finances and public sector net borrowing for the UK as well as a speech from ECB President Mario Draghi and Friday; a whole host of Eurozone Markit PMI survey figures!
This week is somewhat of a quiet one for the Pound, though it should also be noted that Friday will also feature a speech from UK Prime Minister Theresa May, who will be looking to address the current Brexit deadlock. Whilst it is unlikely that she will be able to resolve the impasse, she may seek to cure some uncertainty regarding the future of the UK’s economy by offering some new information. If this occurs then Sterling may climb into the week’s end.