There have been several catalysts for Sterling’s recent rapid rise. We saw retail sales data come in well above expectations. Previous figures arrived at -0.2% and the general consensus was that the next set of data would arrive at 0.4%… they landed at impressive 0.8%. Average wage growth also came in above expectations at 2.8%, which is very close to parity with inflation which is a strong indicator of a strong economy. Unemployment figures in the UK have also been very impressive, and they currently sit at a 43 year low.
Another major factor is that a deal for the Brexit transitional period has been agreed, with the UK being granted access during to the EU’s single market during the transitional period.
A further catalyst was added yesterday when it emerged the European Central Bank (ECB) may be holding off on cutting the Eurozone’s current Quantitative Easing (QE) program. QE is when money is pumped into an economy in order to stimulate growth. Current monthly increments are €30bn a month. If this were to be cut to nothing it would no doubt mean a substantial improvement in the Euro value and therefore a drop in the GBP/EUR exchange rate. With inflation now a concern in the Eurozone it has pushed a cut in QE further back, which was the cause for the GBP/EUR rate to strike 1.1589 today.
Will the GBP/EUR exchange rate improve
The question still remains, could we see further improvements or will we see the GBP/EUR rate retract below 1.15, as it has done on numerous occasions during the past 11 months. A stop/loss order may be a viable option if you are currently looking to exchange currency. This would to offer a safety net should there be a quick fall on the exchange.
Keep an eye on the next set of average wage growth data on Tuesday as this could well be of importance.