The GBP EUR exchange rate consolidated last week with mixed data from the economy in the UK and Europe. The week ended with a central bank summit in Portugal with the heads of the Bank of England and European Central Bank both signalling further tough action on inflation. The week ahead will see economic data in the form of European inflation.
The GBP to EUR was trading at 1.1620 as the weekend approached. It will look to hold support at 1.1600.
European inflation could push the ECB to action
One of last week’s shock figures was a rise in Spanish inflation to 10.2%. That rate was a big jump from 8.5% in May, beating all 15 estimates in a Bloomberg survey.
The European Central Bank will surely have to act at the next meeting with a larger 50bps hike to catch up with other banks.
Analysts expect a move to 8.4% in the Eurozone’s annual rate, which would be up from 8.1%. A drop in the monthly rate was expected in Spain and the same is expected in Europe, but a higher number could force the ECB’s hand. Governing Council member Pierre Wunsch said a 25 basis-point hike in July is a “done deal.”
However, money markets cut their outlook slightly to 163 basis points of hikes this year compared to 164. The euro was under pressure on Thursday after ECB Chief Christine Lagarde commented that the period of low-interest rates was likely over.
She added that the ECB was ready to “move faster” on interest rates but was “data dependent”. The central banks don’t like to give much away. Data in Spain must surely be tipping them towards a decent-sized hike in the July meeting.
BT joins disgruntled workers with first strike in 35 years
BT workers joined the strikes in the UK with their first industrial action in 35 years. The Communications Workers Union (CWU) confirmed the news, stating that 40,000 workers will join the strikes. The current inflation level marks a near 20% drop in real wages at BT. Teachers’ unions earmarked autumn strikes. Postal service were due to vote on their own actions.
BT CEO Philip Jansen said the company could not pay staff more. However, he was reminded of his own 32% pay hike due to share awards.
Strike action from BT could affect infrastructure and call centres with potential problems from work from home broadband users.
Bank of England Governor Andrew Bailley also spoke at the ECB summit, remarking that all options “were on the table” for rates.
“And while we are not forecasting another decline in Q3, GDP growth will probably remain weak all this year and a recession is a distinct possibility,” said Paul Dales, chief economist at Panthon.
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