The GBPEUR exchange rate saw its rally falter this week as lower inflation and higher virus cases led to profit-taking. The UK saw inflation cool to the BoE’s 2% target and that has traders believing that the chances of an earlier rate hike have disappeared for the country. The headline data for this week will be from Germany with a final reading of GDP, consumer confidence and IFO business sentiment.
The GBP to EUR has slumped from the yearly highs to trade below 1.17 as the week begins.
German Election Only a Month Away
The German election is only a month away but is quietly avoiding the news for now. Angela Merkel’s successor will be chosen and her Christian Democratic party replacement, Armin Laschin, is said to be faltering in the polls.
Germany will elect the first leader in almost two decades after 16 years under Merkel. The race is now a close call with the Social Democratic party moving ahead.
“Never since 1949 has a federal German election been so open,” said Manfred Guellner of the Forsa polling institute. “If the CDU-led bloc still wants to win, it would basically have to replace its candidate.”
Members of Laschin’s own party and his rivals have talked of a “sleeping-car campaign,” and said that his campaign style “doesn’t convince anybody.”
This election will be noted for its rise in support for the Green party which is also in the running, but the outcome may be for yet another coalition as has been the case for confused voters in many countries.
The election may become more of a talking point in the next week or two and the key focus will be on spending. The CDU’s Laschin is ruling out tax rises and promising a return to frugal spending and the ultimate winner will have an effect on German bond yields.
Sterling Will Now Hinge on Virus Cases
The pound sterling saw a busy week with inflation and employment releases coming a week after the latest GDP numbers. The week closed out with retail sales and consumer confidence in the country and those numbers were set to fall as the initial reopening bounce fades.
The pound has no big data releases ahead this week and the currency will focus on the euro data and the virus case situation in the UK, where over 36,00 cases were reported into the weekend and over 100 virus-linked fatalities.
The virus is set to continue higher into the autumn as the temperature drops and school kids return. The rise in cases will also have an impact on the late-September end to furlough.
The pound saw inflation drop to the Bank of England’s 2% target in the headline number for the week, but analysts and the bank expect it to rise again.
ING bank said:
“UK inflation is unlikely to be far off 3% in August and will probably be fairly close to the Bank of England’s 4% forecast by November.”
To discuss these factors in further detail ahead of your currency exchange, get in touch using the form below.