Pound remains under pressure amid deluge of economic data
The pound edged close to 91 pence against the euro yesterday, with pressure on the UK currency set to continue this week amid a raft of economic data.
Inflation, retail sales and employment is all due out this week, with the cost of living to be announced this morning.
Just days after US investment bank Morgan Stanley claimed the pound could hit parity with the euro by the end of next year, Ryan McGrath of Cantor Fitzgerald suggested the 95 pence mark wasn't that far away.
The weak pound is a boon to many UK-based exporters, giving their products a competitive edge on world markets. However, as a major importer of food and raw materials it also drives up costs for businesses and households inside the country.
The euro has surged more than 6pc against the pound this year. A further swing lower for the pound will hit Irish exporters to the UK, driving up the price British customers must pay for products or eroding margins.
Sterling slipped to its weakest level versus the euro in 10 months on Friday, a day after data signalled sluggish UK growth, prompting money markets to push back bets on the timing of a Bank of England interest-rate hike.
Economic indicators this week are unlikely to alter the gloomy outlook, while politics could cause swings in the currency, according to Viraj Patel, a foreign-exchange strategist at ING in London.
"The combination of key UK data releases, as well as Brexit and geopolitical headlines, may present some near-term turbulence for GBP markets," he wrote in a client note.
"We expect the next round of key UK data releases to be the final nail in the coffin for a 2017 BOE rate hike.
"While higher inflation figures may keep lingering hopes alive, the slowing trend in consumer activity, as well as uncertainty over the degree of slack in the labour market, should keep the hawks at bay."
It's not just that sterling is weakening, but the euro is also strengthening.
The common currency has soared 12pc against the dollar this year amid improving economic growth and as fears of a populist revolt against the European Union diminished when pro-establishment politicians won elections in France and the Netherlands. A vote in Germany next month is giving more cause for optimism as polls suggest German Chancellor Angela Merkel will comfortably win a fourth term.
As skepticism grows within UK Prime Minister Theresa May's own cabinet that a comprehensive trade deal can be struck before the scheduled departure date of March 2019, markets will closely watch for headlines on whether a transitional agreement could be brokered. The UK government is set to release a series of position papers this week, which could lend clarity on how much Ms May is willing to compromise.
"On the Brexit front, we continue to believe it is too early for GBP markets to price in any Brexit transitional deal hopes; there are a number of 'divorce' stumbling blocks that need to be overcome before any transitional arrangement is signed, sealed and delivered," Mr Patel wrote, adding that sterling "is far from out of the woods when it comes to political event risks".
(Additional reporting by agencies)