By Matthew Boyle
With GBP>EUR rates trading at near 12-month highs, investors continue to assess economic data from both regions for clues about the future direction of interest rates. With the US-Iran conflict calming and oil prices reducing, lower levels of inflation will certainly play a part in the central banks’ outlook and policy. With reducing inflation, also comes reducing interest rates, which in turn lowers investor interest in a currency, so buyers of the Euro may want to take advantage of these current levels.
With the Pound also being influenced by domestic economic conditions, labour market performance, inflation developments, and expectations surrounding future monetary policy. Market participants are closely monitoring economic releases to determine whether policymakers will maintain a cautious approach or begin easing financial conditions further. At the same time, movements in the US Dollar continue to play a significant role in shaping GBP performance, with stronger US economic data generally supporting the Dollar and creating headwinds for the Pound.
An upturn in economic activity in the United States has helped maintain demand for the US Dollar. As a result, GBP/USD and EUR/USD are likely to remain sensitive to upcoming inflation figures, employment data, and comments from central bank officials.
Sterling does remain vulnerable as economic uncertainty and expectations for a weaker stance from the Bank of England towards monetary policy, continue to weigh on investor sentiment. Signs of slowing domestic growth and easing inflation have increased speculation that the banks weaker approach could reduce the Pound’s relative appeal. However, with the US Dollar benefiting from resilient economic performance and demand for safe-haven assets, this is encouraging GBP>EUR rates to remain high. But, unless UK economic data shows a meaningful improvement or market expectations shift in favour of tighter policy, Sterling is likely to remain under pressure in the near term.
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Wednesday
10.00 EUR Inflation data
14.00 EUR ECB President Lagarde Speech
15.00 USD ISM manufacturing data
Thursday
13.30 USD Employment data and Non-farm payrolls
Friday
12.00 AUD PMI Data