Market Report - 27/02/2024
Busy week ahead for GBPEUR ; Market awaits inflation data
It’s a packed out economic docket for GBP/EUR this week, with a host of key data releases which could change the trajectory of the aforementioned currency cross. We have also entered the busy period in the lead up to the March 6th budget announcement, to be delivered by Jeremy Hunt.
Whilst today is one of the quieter days of the week ahead, Wednesday’s economic calendar is set to see Consumer Confidence from the EU released at 10am GMT, closely followed by a speech from ECB President Lagarde, where she is due to discuss future fiscal and monetary policy for the European Union and how they will approach proposed rate cuts later in the year.
Thursday is also a very data heavy day. There is a plethora of CPI releases from around Europe, including Germany, which often is the one most closely watched by GBPEUR traders; as it is the largest economy within the EU and often plays a key role in EUR volatility. After that, there is the eagerly awaited G20 Press Conference from the Eurozone. This is important because initiatives and policies established during these meetings can have a substantial impact on currency markets. An optimistic view of officials would be deemed bullish for the euro, whereas a pessimistic view will be deemed bearish.
Lastly, on Friday we have PMI data due to be released for both the UK & EU. We are forecast to see contraction in the UK Manufacturing Sector, which could re-emphasize the thought that the UK is on the brink of recession. This is also set to be case for the EU Manufacturing Sector, which is forecast to show a reading of 46.1 (anything south of 50 shows contraction). After this, we have got EU CPI data & Unemployment data to finish the week. A further slowdown in eurozone inflation could prompt Lagarde and the ECB to increase odds of a Q2 rate cut, whereas a rise in inflation could be prompt a hawkish reaction form ECB policymakers.
Looking at the March 6th policy announcement; current Chancellor Jeremy Hunt has proven himself a safe pair of hands by returning orthodoxy to UK fiscal decision-making, but this is an election year, and with the Conservatives low in the polls, the temptation to make giveaways must be tempting.
The risk is that the Chancellor announces measures that once again raise questions about the sustainability of the UK's finances, given the relatively small pot at his disposal.
"Were Chancellor Hunt to misread the mood of gilt investors and cause another upset, sterling would again come under pressure," says Chris Turner, Global Head of Markets at ING. "Short-term models suggest a 2% sell-off in sterling could happen quite easily were investors to again demand a risk premium of sterling asset markets."
Ahead of this budget announcement, the FX markets remain relatively relaxed. However, as we well know from previous announcements; there is always the risk for extensive volatility based off of what is said & what new policies are due to come into play.