GBP/EUR: Brexit Nerves Weigh On Pound
  • Pound (GBP) holds steady after losses last week
  • BoE could hike the UK into recession
  • Euro (EUR) rose after hawkish ECB minutes
  • ECB’s Lagarde to speak

The Pound Euro (GBP/EUR) exchange rate is holding steady at the start of the week after booking losses in the previous week. The pair fell -0.4% last week, settling on Friday at €1.1652 and trading in a range between €1.1646 – €1.1761. At 09:35 UTC, GBP/EUR trades -0.00% at €1.1652.

The pound fell modestly against the euro last week as investors weighed up the prospect of the Bank of England raising interest rates higher against the likelihood of the central bank tipping the UK economy into recession.

Data last week showed that UK wage growth rose to a record level of 7.3% in the three months to May however, unemployment ticked slightly higher to 4% suggesting that weakness could be starting to seep in into the UK labour market. The market is expecting the Bank of England to hike interest rates by a further 1.5% to a peak rate of 6.5% this cycle. Economists are doubtful that the central bank will hike rates so high.

This week all eyes will be on Wednesday’s inflation data which is expected to show that UK CPI cooled to 8.2% year on year in June from 8.7% in July. Core inflation is expected to hold steady at 7.1% year on year showing that inflation is remaining very sticky.

The euro rose across last week as investors digested hawkish minutes from the June ECB minutes which showed that the central bank considered that more rate hikes were needed in order to tame inflation.

There is no high-impacting eurozone data due for release today. Data confirmed that inflation in Italy was 6.4% YoY in June, in line with the preliminary reading.

Instead, attention will be on ECB speakers hitting the airwaves, including ECB President Christine Lagarde and chief economist Philip Lane. Any comments surrounding inflation or the future path of interest rates could influence the pair.