By Matthew Boyle
Last week saw GBP>EUR rates reach the highest levels since February 2020. At the beginning of December last year most would have suggested this would have been far from likely.
However, we have had a run of good form from the Pound and indeed the UK since – avoiding supply chain issues over the Christmas period, resisting UK Omicron-caused lockdowns and seeing the Bank of England act in raising interest rates, a move expected but taken much earlier than anticipated.
So having navigated a minefield of downside risk, it is little surprise we are here. Rates are currently trading sideways, bobbing along underneath a significant and longstanding level of resistance.
The question asked now of course now is will it break through?
Aside from the Pound’s good form, rates have also been helped by a weak Euro, with much of Europe hit hard by Covid and so feeling the Economic impact.
To date the European Central Bank insisted there would be no interest rate rise throughout 2022. However, with inflation (unsurprisingly) on the increase and reaching a record high, they may need to act.
Any hint of this or action would certainly tip rates back from the current position. And, as we have seen in the UK Central bank interest rate action can be a serious driver for exchange rates.
That said and crucially we see UK inflation figures released this Wednesday which will be the focus for the market.
The figure here is key to the timing of the next interest rate hike by the BoE. Should there be a shock increase to December’s figure of 5.1% this would support action in February to raise rates. If inflation drops, we could see GBP>EUR rates do the same as pricing in of a speculated hike fade.
With GBP>EUR rates only having been here 3 times in the last 5 years now is far form a bad time to take advantage and not to take a chance.
Speak to your Broker today for some friendly guidance on how to reduce the risk of your cost increasing.
Data This Week
Monday
N/A GBP NIESR estimate
21.00 NZD House Price Index & Business Confidence
Tuesday
07.00 GBP Unemployment Data
07.00 EUR EcoFin Meeting
10.00 EUR German ZEW Survey
Wednesday
07.00 GBP Inflation and PPI data
07.00 EUR German Inflation
14.15 GBP BoE Gov Baileys speech
Thursday
00.30 AUD Employment Change & rate
10.00 EUR Eurozone Inflation Data
Friday
00.01 GBP Consumer Confidence
07.00 GBP Retail Sales
12.30 EUR ECB President Lagarde Speech
13.30 CAD Retail Sales