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One of the ways we help your business is by looking closer at the currency pairs you care about by analysing market data that’s historically had an impact on the pair and providing insight to forecast what could come next.
Read on to take a look at our current outlook for the sterling-euro currency pair.
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GBPEUR supported
A dismal week for GBP following lower inflation numbers, BoE (Bank of England) holding rates and lower economic activity in September. Markets seemed to have priced in most of the negativity surrounding GBP, which encouraged buying of the currency at the May/July support levels.
Very little to come out from the UK this week, with only the final readings of economic growth for Q2 to be released, so little volatility expected from this data point. GBP will likely take cues from general risk appetite in market.
This week will be all about inflation numbers from Europe for the month of September, with both the headline and core number expected to come in lower than August. We wait to see what impact this will have on market pricing for any possible rate cuts in 2024.
With minimal data out of the UK this week, moves on the GBPEUR pair will stem from Europe’s inflation numbers. Any upside surprise could well cause a move to our 2nd target on the downside.
GBPEUR remains rangebound
Price action on GBPEUR remains relatively subdued with flows in the FX space continuing to favour USD, but it’s clear to see the highs of 2023 remain a barrier for GBP to push on further against the EUR.
Support for GBP can be seen at the lows over the last 3 months and expect the pair to remain between these areas for now
With the BoE (Bank ofEngland) meeting on Thursday, we could well see the last 0.25% hike by the Bank or a pause with suggestions of a final hike in November. Either way the net result is that one more hike is penned in. More importantly for GBP, will be how the markets price in rate cuts in 2024, larger or earlier rate cuts will add to further gloom for the currency.
PMI numbers from the UK and Europe will be a key barometer for growth differentials between the two economies and GBP could get a boost, should the number come in higher for UK versus Europe.
GBPEUR testing 2023 highs
GBPEUR pushed higher on the back of the high wage numbers as well as inflation numbers not falling as much as expected. The story surrounding the weakening Chinese economy also hurt the EUR, taking the GBPEUR pair to near-2023 highs.
We get our first taste of economic activity in August with the release of services and manufacturing PMIs.
For Europe, PMI numbers for Europe and German GDP numbers will be in focus, as well as any further data suggesting a decline in China’s economy.
With markets repricing peak interest rates in the UK to 6% and data suggesting weakness in the Chinese economy it seems markets will want to test the 2023 highs.
Pair continues to range
Last week, the GBPEUR pair continued to trade in a tight range with no big data points to have had an impact.
This week for the UK, there will be plenty of data for the markets to sink their teeth into. On Tuesday, wage data is expected to show that average earnings rose by 7.4% in the three months leading up to July, which could add to further gains for GBP. However, a drop of inflation numbers on Wednesday could cause markets to ease interest rate expectations, likely adding pressure onto GBP. UK retail sales will close the week off on Friday.
EU GDP readings are due out this week and the key for the EUR will be whether the numbers continue the trend from the UK and US, where growth for the second quarter came in higher than expected. Final inflation numbers are also due this week.
“Resistance 1” continues to be a tough level to break and should UK inflation come in lower on Wednesday, then we could see a move lower on the GBPEUR pair.
April uptrend broken
The prior week’s retracement looks to have now completed, with the fall below the April trend now continuing. A lot of the move lower had taken place in advance of the BoE (Bank of England) meeting and moves have stalled since.
This week for the UK, the only thing to note will be the second quarter growth numbers on Friday. markets are expecting the economy to have registered no growth when compared to the first quarter of this year.
There is very little expected from the Eurozone this week, with only the final inflation numbers from Germany in focus, which is expected to remain at 6.2%.
“Resistance 1” now looks like a tough level to break and should UK GDP on Friday come in lower than expected, we could see a test of “Support 1” which would be the lowest rate since May.
April uptrend broken
Prior to last week’s move through April’s uptrend support, we saw retracement on the GBPEUR pair. The move came in after PMI numbers showed that economic activity was higher in the UK than in Europe.
Last week, the ECB (European Central Bank) meeting was perceived as dovish, however, GBP was not able to take advantage of the broader EUR weakness.
Thursday’s BoE (Bank of England) meeting will be the highlight for the UK and will likely give markets a gauge of whether we’re at the start of a bout of GBP weakness. Markets are now 50/50 over a 0.50% interest rate hike, following recent data and we’ll look to see what the bank suggests about future rate hikes as week. A switch to data dependency will likely lead to lower pricing on additional interest rate hikes this year and weaken GBP. We will also have a final reading of July’s PMI numbers.
This morning, Eurozone numbers were released showing a surprise uptick on GDP numbers, with the economy growing 0.3% in Q2 compared to -0.1% in Q1. Core inflation remains sticky at 5.5%. The EUR is drawing support to start the week.
GBPEUR performance will likely be driven by the BoE meeting on Thursday. Following last week’s dovish take on the ECB meeting, thoughts are now leading to whether the BoE meeting will be interpreted the same way and thus could we be in for another test of “Support 1” should markets lower future interest rate hike expectations.
April uptrend broken
Last week April’s uptrend broke, following the lower-than-expected inflation numbers from the UK, causing peak interest rate expectations to be scaled back. The losses were capped, however following ‘dovish’ comments from ECB members suggesting that a September rate hike is not guaranteed.
UK PMI numbers released this morning are the only major data point for the pound. The numbers revealed that economic activity fell even more than expected and backs recent concerns over the UK economy.
This morning, Eurozone PMIs pointed to an economy that is continuing to underperform and raises further doubt for the ECB (European Central Bank) to hike again in September. The ECB is widely expected to raise interest rates by 0.25% this Thursday, but it’s the guidance on future hikes that will be key for the euro. The week finishes with inflation numbers from France and Germany.
Whilst both UK and EU PMIs came in lower than expected, the data does show that the UK is performing better than Europe. Key this week will be the ECB meeting and anything taken as ‘dovish’ will likely cause a slight retracement on the losses seen on the GBPEUR pair last week.
Gains remain capped
“Resistance 1” has moved up 20 pips to accommodate its prior level being taken out marginally, but the breakthrough was not sustained. However, it’s worth noting that we’re seeing a divergence on price action and interest rate differentials, suggesting that the recent highs may not be sustained. “Support 1” will need to be taken out to back this view.
This week, the big event on the GBPEUR pair will be the Uk inflation numbers. Whilst headline inflation is expected to drop to 8.2%, it will be the core inflation number that will be the key measure of whether the BoE (bank of England) will hike interest rates by 0.50% or not in August.
With the markets still pricing in 1.22% worth of additional hikes by the BoE, the bar is set high and anything to suggest that inflation is dropping will likely cause GBP to weaken, dropping down to the “Support 1” level. The latest retail sales report is also expected to be released on Friday
Final revisions on June’s inflation numbers will be key for the EUR this week. Headline inflation is expected to ease to 5.5% but core inflation is expected to remain at 5.4%, which should keep the euro supported.
Gains remain capped
“Resistance 1” was tested once again after markets lifted the terminal interest rate in the UK from 6.25% to 6.5%. Interest rate differentials between the UK and the EU remain relatively stable, which is more than likely keeping gains beyond “Resistance 1” capped. A breach below “Support 1” will be needed to affirm any further drops on the pair.
This week, UK job numbers will be in focus providing insight to whether wages will continue to climb higher, add further inflationary pressures, and support the markets pricing of seeing another 0.50% rate hike in August.
GDP numbers for May are also due for release on Thursday. Recent suggestions of seeing higher terminal interest rates have made markets cautious on the negative implications this could have on economic growth. If growth is already subsiding or contracting, then GBP could come under pressure.
German and Spanish inflation will be in focus this week alongside the minutes from the latest ECB (European Central Bank) meeting. ECB speak continues to be hawkish but should the data point to slower inflation, the 0.50% worth of additional rate hikes being priced in could be erased which would be negative for EUR.
Downtrend intact?
The resistance levels at the six-month highs proved to be too much for the GBPEUR pair, as markets continue to remain nervous about the UK outlook. Should there be demand for EUR at the top of the down trending channel then we would expect a test of “Support 1”.
Data points from the UK will come from the Services and Manufacturing PMIs, giving a gauge of how the economy is performing. A slowing economy in a backdrop of high inflation and interest rates could spell trouble for GBP.
PMI numbers are the only significant data points from Europe this week, but as they are final numbers we would expect minimal impact on any EUR moves.
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