British Pound Looks to Add to Best Weekly Run Against Euro Since October 2015, US Dollar Since June 2015

Pound sterling's recovery remains intact heading into the new week with the currency having the advantage of commencing trade above crucial support levels that advocate for further gains against both the dollar and euro.

The pound has enjoyed its best weekly performance against the euro since October 2015 having moved from a minimum at 1.2661 to close at 1.2934. 

The best rate on offer over the course of the past 5 days was at 1.30.

The pound to dollar exchange rate meanwhile enjoyed its strongest week since June 2015 having moved off a minimum at 1.3856 to close at 1.4231.

The highest level recorded was seen at 1.4249.

"Sterling continues to rise, taking out 4 big figures this past week. A lot of this has to do with positioning as sterling became deeply oversold but concerns about Brexit also appear to be easing. There's been no specific headlines or polls to suggest that the risk has diminished but the price action in the currency certainly suggests this thinking," says Kathy Lien, analyst at BK Asset Management.

The pound advanced against the dollar despite the release of some better than expected jobs numbers out of the US.

Non-farm payrolls blew expectations by reading at 242K, well ahead of the 190K forecast. The result has been  advances in the dollar that threaten to bring an end the multi-day rally in sterling.

Latest Pound/Euro Exchange Rates

	Live: 1.1459▲ + 0.14% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1069 - 1.1115
**Independent Specialist	1.1299 - 1.1344 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

However, there was also news that average hourly earnings had fallen way faster than analysts were expecting, we believe that this has tempered enthusiasm for the dollar, and sterling clinched another daily gain and solidified itself above the 1.42 level.

"The sharpness of the move to some extent illustrates the extremity of the negativity that was priced-in. Technically, the rebound is reaching importance resistance in the 1.4250/1.4350 area," says a strategy note from Lloyds Bank hinting at where gains may struggle to extend.

But, "barring very unfavourable developments, in the short term downside could in any case remain contained inside the GBP/USD 1.40-1.38 corridor,” says Asmara Jamaleh at Intesa Sanpaolo.

We Were on the Money With Our Euro Forecast

Technical factors have been in command of sterling of late with the currency bouncing higher in the face of poor data and banter about the potential for Bank of England interest rate cuts.

In normal times this would have been a poor week for GBP. But these are not normal times and the UK currency can claim its place amongst the winners in this week’s performance tables.

The issue facing sterling is that it appears the technical rebound that has been in command over recent days has run its course.

We noted last week that the mighty 200 week moving average was coming into play and we speculated that this was as good a point as any for a recovery to move off. We were on the money. 

Bargain hunters have purchased pounds at discounted prices while speculators booked profit on the move lower; both dynamics halting declines and aiding a recovery.

Can Pound Hold Above 1.28 Against the Euro?

The pound’s ability to hold above 1.28 against the euro will largely depend on whether the Brexit debate dies down.

“We may soon get a brief respite from the Brexit debate as attention starts to turn to the Budget that takes place in a little under a fortnight,” note Capital Economics in a client brief.

Beware though, the backdrop is hardly what the Chancellor would hope for; indeed, Mr Osborne has already embarked on some expectations management.

Even if he manages to avoid ramping up austerity further, the purse strings will be kept tight on March 16th.

We don’t see any indications that the budget will provide a boost to the British pound.

ECB is This Weeks Big Event

All eyes turn squarely on the euro exchange rate complex in the week ahead and the shared currency will therefore likely be in the driving seat.

Inflation is again negative in the euro area, and likely to stay there for much of 16H1. Consequently, the ECB must act, but the precise composition is still debateable.

"We expect a 20bps cut to the depo rate, an increase in monthly asset purchases to €70-75bn/mo (and possible extension beyond March 2017), and another LTRO and NLTRO to support market liquidity," says James Rossiter at TD Securities in London.

Rossiter notes that with a technical review on the table as well, the possibilities are immense, but hesitation within the Governing Council is sure to lead to at least a little disappointment on some fronts.

Here are ten possible measures that could be announced at the March 10 meeting.

Carney Back in the Spotlight

A quiet week for UK data lies ahead, with just January’s industrial production and trade figures released.

Instead, the main interest will be the Bank of England Governor’s testimony to the Treasury Committee on Tuesday about the EU referendum.

Mr Carney will be questioned in particular on the Bank’s contingency planning for a Brexit.

We will also be on the look out as to whether recent data has invited the possibility that the Bank of England could look to cut interest rates, rather than raise them.

Some economists have suggested that the debate on interest rate cuts could soon heat up. The Carney appearance could well impact the pound if he confirms this is indeed the case.

"Expect him to paint a downbeat assessment of Brexit on the UK economy as lower population growth and higher uncertainty would weigh on growth," says James Rossiter at TD Securities in London.