Sterling starts this week in the mid 1.11’s which in my opinion means we could see the GBP/EUR rate below 1.10 at some point this week. There has been a constant downward trend for the GBP/EUR exchange rate and that looks as if it may be set to continue.
This weekend the International Monetary Fund (IMF) downgraded the growth forecasts for the UK in 2017, whilst at the same time upgrading most of the major European nations. This news is not always a major influencer as many have expected there to be a slowdown for the UK, but any negative news does not help a struggling currency.
Inflation and GDP Data
This week the main event will come on Wednesday with the latest Gross Domestic Product (GDP) figures for the quarter to be released. The figures are expected to show quarter on quarter growth along with a reduction in the year on year growth.
If the data is released as expected then there is unlikely to be any surprises, however lately UK data has come out substantially lower than expected. A continuous series of bad data has caused much of the demise for Sterling and it looks as though that may continue.
There could be one bit of respite for the Pound if the latest inflation report suggests inflation is expected to rise.
One of the consequences of inflation rapidly increasing is an interest rate hike may be used to slow the ascent down. This may cause a pinch on the consumers’ pockets as average earnings may not rise, but the cost of goods does. Investors will receive more interest on their returns and therefore are encouraged to hold funds in Sterling, this will then see more demand for Sterling and the currency could gain a few percent.
However, with inflation falling from 2.9% to 2.6% last week, there may not be immediate need to raise interest rates. If the Bank of England believe inflation may settle then there could be a delay, this in turn would be Sterling’s last hope for a reasonable length of time for any self-created strength.