We are just about to enter a period of heightened volatility for Sterling to Euro exchange rates as there is a number of economic data releases due to come out during the latter part of this week.
We begin with tomorrow morning’s UK GDP data which is the first estimate for the third quarter. UK Retail Sales figures came out at their lowest level in 4 years recently, and as they make up a big part of GDP then I think we could see a lower than expected figure, which could potentially see the Pound fall against the Euro.
During 2017 the Brexit issue has continued to weigh heavily on consumers and I would not be surprised to see this affect GDP figures tomorrow morning.
On Thursday the focus will turn towards what is happening on the continent with the latest European Central Bank meeting due on Thursday afternoon at 12:45pm. The expectation is that the central bank may taper their current QE programme, which is currently set at €60bn per month. The continent has been showing very positive signs for months, including positive growth combined with controlled inflation. Therefore, I would not be surprised to see some tapering being announced on Thursday which could see further Euro strength against the Pound.
A lot of people are waiting to see what may happen with the Pound when the Bank of England meets in just over a week’s time. The current expectation is for a interest rate hike but I personally think a rate hike at the moment may be a little too premature. My reasoning is that although inflation is riding too high the problem is that average earnings are not keeping up with inflation and so a rate increase could cause problems for British economic growth and therefore Sterling.