EUR/GBP Fundamental Forecast – August 1, 2016

The EUR/GBP added 26 points as the euro was a bit stronger and the pound continued to ease as another central bank held off until its August meeting. The pair is trading at 0.8442. Sterling fell to a two-week low against the euro as 3,000 job cuts at British bank Lloyds adding to signs of a worsening economic outlook as investors bet the Bank of England will cut interest rates next week.

Since the 14 percent fall in the pound in the hours after the vote to leave the European Union on June 23, sterling has proved more robust than many major banks’ forecasts. Derivatives market indications of its future value are now far more balanced.

Former BoE policymaker David Blanchflower was the latest voice to suggest the Bank may cut rates into negative territory in an article in the Guardian newspaper on Thursday. British banks have already begun to tell savers that they may start charging them for depositing cash.

Interbank money markets, however, have yet to price in a cut in official rates into negative territory, conscious of past warnings from the bank that such rates might be counterproductive given the structure of UK banking.

British consumer morale suffered its sharpest drop in more than 26 years after last month’s decision by voters to leave the European Union, according to figures that are likely to embolden Bank of England policymakers to take action next week.

Market research firm GfK said its gauge of consumer confidence fell to -12 from -1 in June, the biggest drop since March 1990 – when Margaret Thatcher was prime minister and Britons were reeling from interest rates rising to 15 percent.

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Monday, August 1, 2016

Government Bond Auctions

Date/Time Country Type

Aug 2   JPY                  10-Year JGB Auction                          -0.243%

Aug 2   USD                4-Week Bill Auction                           0.270%