GBP/EUR trapped within a broad range – Sterling Update

GBP/EUR trapped within a broad range – Sterling Update


It has been a fairly light data agenda in the UK this week, with only the latest Halifax House Price report really catching the eye, confirming that buyers surprisingly returned to the fore throughout the past month, with prices duly increasing by a respectable 1.1% and easily beating estimates of a 0.4% gain. That jump helped to ensure yearly prices have now accelerated by 2.1%, edging analyst estimates of a 2% gain, despite a big drop in prices announced by Nationwide just a week earlier. The property market will take growth at any level at the moment, given increasingly higher interest rates, which has understandably underpinned a rather measly performance for the sector over the past 6 months.

With such a light UK data agenda, GBP/USD has taken its directional impetus from the dollar side of the fence and having traded between 1.1950 – 1.2200 since the beginning of February, GBP/USD finally succumbed to broader dollar strength (see USD), moving to as low as 1.1800 earlier in the week. Despite that drop out of the bottom of the range, the pound has since found a modicum of support, with GBP/USD willingly heading back over 1.1930 through yesterday as the dollar rally wavered. Today’s key US nonfarm payrolls are likely to determine the short-term profile for cable, but beyond that, the wider pound has scope to fare better. GBP/EUR still remains trapped within a broad 1.1200 -1.1400 range which has been in place for the past month.

Next week sees the release of the latest UK employment data, with a slight drop in claims expected and a rather healthy-looking 3.7% overall unemployment rate likely to prevail. Whilst the next BoE meeting is not scheduled until the following week, Andrew Bailey and the team will play close attention to the Labour market before deciding on whether the UK economy is in good enough shape to handle any further rate hikes, as they continue with their ongoing battle against sticky inflation. Recent improvements will have rate bulls in a fairly confident mood.


The recent trend of softer Euro area economic data continued through this week, with the latest Retail Sales data declining by 2.3% (YoY) through February, as consumers tightened their collective belts, given ongoing increases to the cost of living. Regional growth data also missed estimates, rising by 1.8% on a yearly basis during the last quarter of last year. German data was slightly more of a mix-bag, as weak Retail Sales (down 6.9% YoY) were partially offset by a noteworthy improvement in Industrial Production, with a 3.5% monthly gain during January.

As we accelerate rapidly towards next week’s ECB meeting, market focus is likely to be on what the ECB says about future rate hikes, rather than what they do on the day, given that they have already widely communicated that they expect to raise rates by another 50bps at next week’s meeting, and anything other than that would be a total fail on forward guidance. However, given that recent slump in key data, it has suddenly become much more of a balancing act for the ECB looking ahead, especially when balanced against those recent increases in inflation throughout the region. The ECB’s Robert Holzmann has suggested that the ECB should raise rates by 50bps at each of its next four meetings, given the stubbornly high inflation amongst the region, but Holzmann has been vocally supportive of a more aggressive hiking path for some time, so we should perhaps balance his views against some of the more dovish amongst the ECB.

EUR/USD sold-off fairly aggressively toward the bottom of the range after those Powell comments earlier in the week but has remained fairly constrained between 1.0500 – 1.0700 since the middle of last month. Of course, today’s US payrolls could still have the potential to bust that particular bubble.

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