EUR/GBP Weekly Fundamental Analysis – February 1-5, 2016 -Forecast

Weekly Analysis and Recommendations

The EUR/GBP closed the week to trade at 0.7605 as both currencies turned downwards on Friday. The European Central Bank, in its efforts to aid the Eurozone economy, recently cut its deposit rate by another 10 basis points to negative 0.3%, and extended its asset-buying program by six months.  Data released Friday showed Eurozone annual inflation rose 0.4%. Meanwhile, French consumer prices fell 1% in January compared with December. Compared with a year ago, prices rose 0.2%.

UK economic data has been less than encouraging and guidance by the Bank of England has been much less hawkish, compared to last summer, Rayner added. “Our base case has been that the Brexit referendum will see a vote to stay in the EU, driven by concerns about the related uncertainty and transitional costs of an exit,” said Rayner.

“However, surveys suggest that, whilst EU membership is not a massive issue for many, the refugee factor is a concern, and recent polls reflect this. As a result, in an environment where refugee flows aren’t slowing, and are set to increase with better weather, the risks against our base case have increased,” he added. Moreover, the UK’s political landscape today looks very different from the summer’s positive political image as viewed by FX markets, according to Rayner.

“So, while sterling is no longer the currency pin up boy, with so many cross-currents, not to mention the curve-ball of unexpected policy action we think taking brave currency positions is particularly unwise at the moment,” he said.

Apart from the Brexit, Rayner mentions that the elections in May, local elections and Scottish Parliamentary elections will all set the tone for future political developments. This, in combination with a slowed economic momentum and a sharp decline in risk assets including the oil-price, means the Bank of England fells comfortable in ‘wait and see’ mode, he said.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

Major Economic Events for the week:

 

Upcoming Government Bond Auctions

Date Time Country 

Feb 02 n/a UK Details of Gilt auctions on Feb 09 & 11

Feb 03 11:03 Sweden Holds bond auction

Feb 03 11:30 Germany EUR 5bn Apr 2021 Bobl

Feb 03 n/a Netherlands Details of DSL auction on Feb 09

Feb 03 n/a US Details of 3 & 10-yr notes on Feb 09/10

Feb 03 n/a US Details of 30-year bond auction on Feb 11

Feb 04 11:50 France Holds bond auction

Feb 04 17:20 Sweden Details of I/L bond auction on Feb 11