Sterling edged up against the euro today, recovering from its worst week against the single currency in nine months and its lowest levels this year, as the euro dipped on weak German manufacturing data.
The pound lost more than 2.5 percent against the euro last week, hitting an eight-month low on Friday, as the single currency rallied on bets the European Central Bank would tighten monetary policy next year.
Though the pound had been supported in recent week by expectations that the Bank of England, too, would raise interest rates in the coming months, policymakers have made it clear that any tightening will be data-dependent.
Weak figures on the British economy last week, therefore, fed doubt that the BoE was getting close to raising rates.
Having reached a 10-month high of $1.3111 last week as the dollar weakened across the board on political worries and falling expectations of another rate hike from the U.S. Federal Reserve this year, sterling was trading flat at around $1.30 on Monday.
We still expect sterling/dollar to take one further leg up as investors price in the May government accepting a longer-term transition, or as PM May calls it the ‘implementation phase,’ which will reduce the cliff edge risk for 2019.
Key data this Wednesday will be the UK GBP figures, this is expected to be lower than this time last year, and up compared to last quarter. If these figures come in below expectation at all we expect this will move the market and Sterling will fall further across the board. The figures will be released at 09:30 GMT.