Despite a hattrick of strong UK data last week, the pound was unable to move higher across the previous week. Meanwhile the euro advanced even though the economic picture in the eurozone showed no signs of improvement. The pound euro exchange rate briefly moved to a high of €1.2075 before slipping 0.77% to close at €1.1954. Coronavirus fears are set to dominate at the start of the week in Europe as the number of cases in Italy soars.
Brexit Headlines To Move Pound In Data Quiet Week
Despite retail sales, inflation and PMI’s surprising to the upside in the previous week, the pound struggled. Analysts suspect that this is increasingly owing to pound investors pricing in the uncertainty related to UK – EU trade talks, which are due to start next week.
This week is quiet as far as UK data is concerned meaning that Brexit trade concerns could dominate. UK Chief Brexit Negotiator David Frost indicated that the UK would not be looking to align with the EU on rules. The EU made it clear that this was a pre-request for a far-reaching trade deal. However, the group of 27 nations have also failed to reach an agreed position which could delay the start of talks. Additionally, the UK’s suggestion of a Canada style deal has also been dismissed by the EU. In short events so far, have not been encouraging nor have pointed towards a conciliatory position from either side.
Investors will be watching headlines closely for further clues over the likelihood of the two sides coming to an agreement.
Euro Watches Coronavirus’ Rapid Spread In Italy
The euro advanced versus the pound in the previous week after a mixed batch of data. ZEW sentiment data for Germany showed that business morale plummeted amid growing fears of the negative effects of coronavirus on world trade. Expectations surrounding the development of export intensive sectors of the German economy dropped sharply. German consumer confidence also declined slightly. However, PMI data showed that the contraction in the German manufacturing sector slowed.
Coronavirus and its potential economic impact could remain in focus amid the rapid spread of the deadly virus across Europe. With 79 cases and 2 deaths Italy has by far the largest number of cases and deaths in Europe. Lock down in 10 Italian cities will unnerve euro investors.
Today investors will look also look towards the release of February’s IFO business climate report. Any further deterioration in morale could weaken appetite for the common currency further.