The Sterling to Euro rate had one of its most volatile weeks in a long time last week, with the rate dropping to a nine-month low before rebounding to a near month high.
The rate dropped following negativity from Bank of England members regarding a UK interest rate hike, however the Governor of the Bank of Italy poured water on the likelihood of changes to the Eurozone’s economic policies. Either way we’re now left with the question of what could happen this week?
Tony Blair Fuels UK Brexit Confidence
Former UK Prime Minister Tony Blair has raised EU hopes of a ‘freedom of movement’ deal between the UK and the EU, whilst speaking on BBC Radio 4. Mr Blair suggested that the EU may compromise on their current stance that the UK would have to allow free movement to be part of the single market.
Furthermore, he suggested that he was not just purely speaking of a whim and he had in fact had heard these things from speaking with EU Senior Members.
In his recent article for the Institute of Global Change, Mr Blair wrote:
“The French and Germans share some of the British worries, notably around immigration, and would compromise on freedom of movement”.
One of the reasons for the change is the demand for reforms from EU nations. Emmanuel Macron is demanding there to be significant changes and one of the plans moving forwards would be a 2-tiered strategy. This would see the core members of the Eurozone have the current rules, but an outer tier which means trade and movement would be more controlled but possible.
The EU know the UK Government wants control of its borders, once they find a way to make that happen trade talks could prosper. This in turn could help Sterling enormously and see the GBP/EUR rate back above 1.20, until this happens that level is still a long way in the distance.
ECB Interest Rate Decision
The European Central Bank will reveal their latest interest rate decision which will be followed by a speech from the Head of the Bank Mario Draghi.
Normally when Mr Draghi speaks the GBP/EUR rate goes against Sterling however this week that could change. The Eurozone is unlikely to raise interest rates or make changes to the current stimulus in place and Draghi may be about to reveal this to the markets.
Analysts had thought this could start as soon as September but following on from the Head of the Bank of Italy, it’s not even been discussed by the ECB’s Monetary Policy Committee.
If Draghi does suggest the ECB plan to keep waiting and see how events unfold the GBP/EUR rate could be back above 1.15 by the end of next week.
UK Inflation Data
The latest Inflation Report Hearing which is 2 weeks late will be released this week along with the latest Consumer Price Index Data for June.
Over the last few months inflation has been going up due to the reaction to Brexit mainly with Sterling’s demise. However, if this continues the Bank of England could raise interest rates, which, whilst pinching UK consumers would help Sterling gain several percent.
In my opinion UK Inflation could rise further and may now be above 3%, should that be the case we may see a boost in the market for Sterling.
There is lots to keep an eye on this week and there could be some good news for holiday money buyers just in time for the Summer break.