GBP/EUR posts biggest fall in two months and eyes fresh lows for the year - will quiet end to the week offer any respite?

Today’s macro highlights:

  • GBP - UK Public Sector Net Borrowing (June)

GBP/EUR posts biggest fall in two months and eyes fresh lows for the year - will quiet end to the week offer any respite?

Sterling floundered once again yesterday as this time it was the turn of retail sales figures to come in short of expectations as World Cup football was seen to have kept shoppers away from the high streets. That’s the third consecutive shortfall we’ve seen for the UK economy in numbers that have a strong bearing over the chance of an August interest rate hike. Perhaps no surprise then that the Pound has fallen so heavily in recent days. The fact that this dip can be explained away by a single event - the football - suggests that tighter monetary policy next week isn’t off the table yet. With the mounting political risk that we’re seeing, moving now might once again prove to be a step too far for Mark Carney and his team.

There’s only one meaningful number being released today and that’s the UK’s Public Sector Borrowing data. This could cut the Pound some much needed slack if we see a print at or below the forecast figure of £3.6 billion. However, any marked jump here would likely raise concerns over borrowing needs going forward and given the overall political and economic woes, confidence in lending money to the UK government is only going one way. As a result, once again the risk to GBP appears to be weighted on the downside here.

Looking further ahead, next week is rather quiet in terms of high profile announcements too, especially with regard to the UK economy. The Eurozone however sees the ECB make its latest call on Monetary Policy on Thursday. The market will be hunting eagerly for further clues as to the pace of QE tapering. Whether the bond buying program can be concluded this year is still up for debate, but with the mounting prospect of a hard Brexit on the horizon - and the remainder of the EU seemingly set to get caught up in the turmoil - the temptation may well be to just draw out the stimulus measures for a little longer.

US Durable Goods Orders, also on Thursday, could again provide some overall direction for the US dollar. A snap back from the contraction we saw in May is expected, so failure to deliver here could provide some short term weakness for the currency. However, given the generally healthy tone of data we’re seeing emerge from across the Atlantic right now, even a significant miss here would seem unlikely to have any lasting effect.

GBP/USD
The 1.30 level was tested yesterday, striking fresh 10 month lows off the back of the retail sales data. We have however seen a modest rebound since, suggesting that the sell-off may be overdone, but a general absence of UK economic data next week may make recouping losses somewhat difficult.

EUR/USD
The common currency managed to snap back after tracking Sterling lowered during yesterday’s session, eventually managing to finish just a shade higher against the US dollar. The pair is finding itself increasingly comfortable moving sideways.

GBP/EUR
The Pound found no respite yesterday, leaving GBP/EUR to post its biggest one day fall in almost two months and find itself sitting very close to lows for the year. With alarm bells over Brexit very clearly ringing and that growing question mark over a UK rate hike next month, it could be a while before bargain hunters are tempted to move in here.