The ‘Brexit’ referendum has once again reared its head. Even the Queen has now become embroiled in the row and the resulting fallout has once again weakened appetite for Pound Sterling (GBP), mostly allowing the US Dollar (USD) and Euro (EUR) to advance.
The European Central Bank (ECB) has been the centre of attention for much of the past week. Towards the beginning of the year, ECB President Mario Draghi had strongly suggested that March would see additional policy action from the Governing Council. This was partly due to the turbulence caused in the markets by their relative lack of action during the December meeting. However, if analysts were expecting this meeting to have calmer results they were very mistaken.
Meanwhile, in the US markets and economists are seriously divided upon the course of action the Federal Reserve is likely to take, both at their upcoming March policy meeting and throughout the rest of the year. Key data failed to provide the concrete justification for the second rate hike investors were hoping for, leaving everyone in the dark regarding the Fed’s plans.
GBP/USD, GBP/EUR Exchange Rates: ‘Brexit’ and Central Banks Keep Markets Talking
The biggest UK news over the past few days has been that the Queen has now become embroiled in the EU referendum row. The Sun newspaper sparked a fresh row after printing a story under the headline ‘Queen backs Brexit’, claiming that Her Majesty ranted against the EU at Nick Clegg, who was Deputy Prime Minister at the time the tirade allegedly took place in 2011. Everyone supposedly privy to the conversation has refuted claims it happened and Buckingham Palace has contacted a press watchdog to complain that the story breaches editorial guidelines.
The Pound Sterling to US Dollar (GBP/USD) exchange rate has trended between 1.4115 and 1.4310 during the past seven days.
An upcoming policy decision by the ECB kept the Euro weak for the majority of last week. Policymakers had strongly hinted that more stimulus measures would be delivered. However, the resulting changes were far more extreme than even the most dovish of forecasters had anticipated. The Euro dropped in response, but comments from ECB President Mario Draghi that interest rates wouldn’t be cut again saw investors returning in droves. The Euro made huge gains as a result.
The Pound Sterling to Euro (GBP/EUR) exchange rate has traded between 1.2745 and 1.3055 during the past seven days, while the US Dollar to Euro exchange rate (USD/EUR) has trended between 0.8918 and 0.9229.
So, what’s likely to happen in the week ahead?
George Osborne will make his Budget speech to Parliament on Wednesday. His last Budget weakened the Pound after he unveiled harsher-than-expected spending cuts. However, with the NHS having just recorded its worst performance on record and doctors striking again, will he be able to continue with his spending review plans, or will he be forced to slow down and risk missing his deficit target? The Bank of England (BoE) are holding their next policy meeting on Thursday.
US retail sales figures for February are released on Tuesday, followed by inflation data on Wednesday and unemployment stats on Thursday. Friday sees the influential University of Michigan Confidence index for March, as well as speeches from two Fed officials.
After the frenzy caused by the latest ECB policy meeting, next week will be much quieter in terms of Eurozone data. Industrial production data on Monday, unemployment on Tuesday and inflation data on Wednesday are the most important figures amongst a slew of less relevant data.
