Sterling to Euro exchange rates rose again last week against the Euro following forward guidance given by the ECB. The key reason why we saw another jump in GBPEUR exchange rates is that President Lagarde didn’t rule out a cut in April but definitely, a cut by the Summer, which means that cutting rates is definitely on the ECB’s mind, potentially before the BoE (As there has been no formal signal from them yet). An April cut for the ECB is now an 80% probability according to markets, as inflation seems to be comfortably on its way back to 2%.1.17 is generally a tough level for GBPEUR so it would be a good idea to take advantage of the current prices given that there is strong resistance at this price if we do see any further meaningful strength from Sterling economically or technically then this will be reviewed.
Another key piece of information released over the weekend is that Fed officials will likely take an important step this week by no longer signaling in their policy statement that rates are more likely to rise than fall, the greatest risk most central banks have now is taking too long to cut rates as it will cause damage to markets, but that damage can be mitigated if timed correctly- of course we will have to see if this actually plays out as it is being reported but it does seem likely given recent U.S dara.
Looking at data for the end of January and beginning of February this week, we have some important releases- the first being GDP and consumer confidence for Europe on Tuesday, both are expected to be disappointing releases so we could see a lower EURUSD and higher GBPEUR on the back of this release.
On Wednesday we have the Fed interest rate decision- where we are expecting to potentially see a shift in rhetoric from Fed Chair Powell as mentioned earlier in this article- if we do see this shift I expect to see a rise in GBPUSD prices and generally a further risk on market.
On Thursday we have European CPI data which is expected lower at 3.2% (Which would push GBPEUR higher) which will then be followed by the BoE interest rate decision- we are not expecting any cuts yet from the BoE, however we will be watching closely for if any members vote for one and any rhetoric change from Governor Bailey- this will be a volatile afternoon for Sterling and it will be interesting to see where the Pound lands after this decision.
Lastly on Friday we have Non Farm Payrolls out of the U.S which are expected to show less jobs added, we will see how the final result comes out but so far it looks like a weak release for the Dollar.