EUR/GBP Fundamental Analysis – Forecast for the week of August 15, 2016

The EUR/GBP continued to rally as the euro remained range bound and the pound had little support with the BoE buying up bonds at a hectic pace. The pair is trading at 0.8644 seeing a gain of almost 2% this week and a gain of just under 4% for the week. The pair is expected to continue to climb in the coming week.

U.K. data was weaker than expected with manufacturing production plunging and the trade deficit increasing.  NIESR also estimated weaker GDP growth in July but the primary driver of GBP/USD weakness was the views from Monetary Policy Committee member McCafferty and the RICS house price report.  As reported in a recent publication, “McCafferty noted that if UK economic data turns down the central bank could slash rates further taking them towards the zero level while increasing QE at the same time. Mr. McCafferty is considered one of the more hawkish members of the committee and was one the four votes against raising the target of QE at the last BoE meeting” – explaining why his comments had such a significant impact on the currency.

According to RICS, prices rose at the slowest pace in three years in July and new sales declined which suggests that the housing market is already adjusting to Brexit and with UK consumer so heavily leveraged to housing, the sharp decline in that asset value is likely to impact consumer spending going forward.  Looking ahead it is going to be a busy and volatile week for the British pound with UK consumer prices, retail sales and employment report scheduled for release.

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