Pound to Euro Exchange Rate Climbs as EUR Suffers from Rival Strength
Despite Bank of England (BoE) interest rate cut bets surging this week, the Pound Sterling to Euro (GBP/EUR) exchange rate had recovered almost all of its sharp Monday losses by Friday. This was due to the Euro (EUR) being weakened by US Dollar (USD) strength.
After opening this week at the interbank level of 1.17, GBP/EUR spent most of the week trending much lower. GBP/EUR touched lows of 1.16 for the first time this year, before recovering in the second half of the week.
While BoE interest rate uncertainty persists, GBP/EUR is trending just below the week’s opening levels again ahead of Britain’s retail sales results on Friday.
The pair could still end the week lower, if UK data disappoints or Eurozone data impresses.
Pound (GBP) Exchange Rates Firm in Hopes for Retail Sales Rebound
Investors have been firming in the Pound (GBP) since yesterday. This is despite a lack of solid support for the British currency this week.
Sterling’s gains have been more due to a combination of rival weakness and hopes that some strong UK data could offset the recent surge in Bank of England (BoE) interest rate cut bets.
BoE rate cut bets have been rising this week, as UK growth, production and inflation stats all disappointed markets. BoE policymakers have indicated that unless data improves, they were prepared to ease policy further.
However, analysts generally expect that Britain’s retail sector rebounded strongly in December. These hopes helped Sterling firm ahead of the data.
Euro (EUR) Exchange Rates Lack Support and Pressured by Rival Strength
Part of the reason for the Pound’s (GBP) recovery yesterday was due to losses in the Euro (EUR).
The Euro hasn’t seen much in the way of strong demand this week, as Eurozone data has been either underwhelming or disappointing.
On top of this, there are persisting concerns that Germany’s ailing manufacturing sector has still not bottomed out, as well as warnings that if not for other German economic sectors the economy may have fallen into recession.
As a result, the Euro was easily knocked lower by gains in its biggest rival, the US Dollar (USD), yesterday.
The Euro often tumbles in times of US Dollar (USD) strength. As some key US retail stats impressed investors, the US Dollar strengthened and the Euro weakened.
Central Bank Speculation Remains in Focus for Pound to Euro (GBP/EUR) Exchange Rate
Reaction to today’s UK and Eurozone ecostats could still drive Bank of England (BoE) and European Central Bank (ECB) policy speculation before markets close for the week, so the Pound to Euro (GBP/EUR) exchange rate still has potential to climb higher or fall again.
If BoE interest rate cut bets remain high, the Pound’s (GBP) potential for holding its gains could thin and it could quickly tumble again.
A surprising development in Eurozone inflation could influence ECB speculation which could cause some late-week Euro (EUR) movement as well.
Central bank speculation is likely to remain a focus looking ahead as well, as next week will be a key week for bank news and bets.
Next Thursday sees the ECB hold its January policy decision, and key January PMI projections will be published on Friday.
PMI data will be the best indication so far of how UK and Eurozone economies are performing in the New Year. These could cause significant central bank speculation and Pound to Euro (GBP/EUR) exchange rate movement next week.