Whilst the uncertainty of the situation in the Ukraine is definitely affecting many markets, most of the major freely traded currencies remain unaffected at the moment. The situation in the Ukraine could change at any point and is certainly having an effect on gas and energy prices and will no doubt have other unforeseen consequences, but as it is impossible to second guess how these events will unfold I am going to stick with the two key data releases that will affect GBP EUR exchange rates this week.
Firstly we have UK Services PMI due out tomorrow morning, and as the service sector is the largest part of the UK economy, it will have a huge impact on the value of the pound. Whilst the figure is expected to be positive, recently it actually came in below expectations and the pound lost value. I anticipate flooding will have had some regional impact but overall there seems to be a growing optimism over the figure, and if yesterday’s positive reading in the Manufacturing PMI is repeated for the Service sector then sterling could be in for a very good day indeed.
On Thursday we have the next ECB rate decision. Recently there has been a lot of speculation that the ECB would be forced into action to tackle very low inflation, either through an interest rate cut or some other extraordinary measure. However, with Friday’s EU inflation figures coming out better than expected (albeit only marginally) this has cast doubt on a policy change this Thursday. The key is likely to be Mario Draghi’s press conference on Thursday afternoon. If there is any hint of further action then I think it is certain GBP EUR rates could bounce back to levels seen last Thursday near 1.22+ however if he is able to paint a positive picture moving forwards then sterling may be struggling to hold over 1.20 before the weekend.
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