The pound surged versus the euro across the previous week. The pound euro exchange rate jumped 1.1% through the five days, lifted by strong UK fundamentals and a more dovish than expected European Central Bank. The pair rallied to a 5-week high of €1.1922, before easing slightly to close the week at €1.1862.
The pound focused on fundamental developments for the majority of last week, with rosy data enabling investors to scale back their expectations of an interest rate cut from the Bank of England when they meet later this week.
A strong jobs report and the highest business confidence in almost 5 years poured cold water on expectations that the BoE would cut interest rates from their current level of 0.75%, down to 0.5%. The pound outperformed its major peers last week; however, the rally could run out of steam this week.
The UK is due to leave the EU on January 31st after the EU withdrawal bill passed quickly through British Parliament and after the EU parliament votes on Boris Johnson’s Brexit deal on Wednesday. This is already priced in and is unlikely to create much volatility in sterling. Over the medium to long term, the pound could come under pressure should the EU and the UK struggle to agree a trade deal in the limited transition period.
Eurozone Data To Lift Bloc’s Outlook?
The euro move lower across the previous week, experiencing its biggest fall following a cautious tone from the ECB. ECB President Christine Lagarde failed to acknowledge recent improvements in eurozone economic data, disappointing euro investors.
On Friday, better than forecast German PMI data helped lift the common currency. The German manufacturing sector contracted by less than expected in January, boosting optimism that Europe’s largest economy was on the road to recovery.
Investors will continue looking for signs of strength in the eurozone economy and signs of recovery. With this in mind, the eurozone economic calendar could offer some support to the euro in the coming week.
Today investors will be looking towards the release of the IFO German business confidence data. GFK confidence data will follow on Wednesday. High impacting data such as German unemployment, inflation and retail sales and eurozone inflation ad confidence data will come in the latter part of the week.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 GBP = 1.13990 EUR
Here, £1 is equivalent to approximately €1.14. This specifically measures the pound’s worth against the euro. If the euro amount increases in this pairing, it’s positive for the pound
Or, if you were looking at it the other way around:
1 EUR = 0.87271 GBP
In this example, €1 is equivalent to approximately £0.87. This measures the euro’s worth versus the British pound. If the sterling number gets larger, it’s good news for the euro.