Sterling & Euro Surge Amid Shifting Market Expectations

Here’s this week’s overview of the Euro and Sterling:

Sterling

Sterling traded at 1.293 against USD by the end of last week, a 1.5% gain. A drop in unemployment and rising retail sales implied the economy might not be slowing.

Friday’s UK retail sales data triggered another wave of sterling buying as traders reassessed near-term BoE, and Fed, policy paths, expecting a slower pace of UK interest rate cuts.

Markets now predict 40bp of BoE cuts by year end, with futures now pricing a 36% chance for a 25bp cut in September from the BoE, down from over 50% prior to the recent strong data.

Euro

The Euro gained, once again, against the dollar last week and ended the week trading at 1.102. This is the first time since January the Euro has reached a level this high at the end of a trading week and it has been one of the major currency gainers in recent weeks.

There has been little fundamental data to support such a rally but a softening dollar and a generally more ‘risk on’ sentiment in markets has helped alleviate fears the Eurozone is heading for an economic downturn.

Activity PMIs being released this week could cause a big swing in EURUSD in either direction.