The Pound Euro (GBP/EUR) exchange rate plummeted last week, as the Bank of England (BoE) remained cautious over future tightening.
What’s Been Happening: Pound Sinks as BoE Takes Cautious Stance on Rate Hikes
The Pound (GBP) began last week with little support, as a positive GDP release was undermined by dour economic news. Data on Tuesday reported domestic unemployment rose to 3.7% in October but was offset by a bump in wage growth.
An improving market mood also lent support to the increasingly risk-sensitive Pound. Furthermore, a cooling of UK inflation in November lent further support to Sterling on Wednesday.
Yet, Thursday saw the Pound tumble as the Bank of England (BoE) published their latest interest rate hike. While the 50bps increase matched expectations, a dovish split within the Monetary Policy Committee (MPC) lead GBP Investors to rethink expectations for future rate hikes.
Meanwhile, the Euro (EUR) saw early gains due to a weakening US Dollar, with the pairing’s negative correlation supporting the single currency.
Thursday sent EUR soaring, with the European Central Bank (ECB) hinting at further 50bps rate hikes in the future. Furthermore, forecast-beating PMI indexes for both manufacturing and services added further support to the Euro at the end of the week.
Three Things to Watch Out for This Week
- UK CBI Releases
Later today and on Wednesday, the UK’s Confederation of British Industry (CBI) will release its latest industrial trends and distributive trades data. Both sets are expected to fall, which could drag GBP lower.
- German PPI
Tuesday brings the release of the latest German PPI data. Another sharp slowing of producer price growth could weaken inflation expectations and dent the Euro.
- UK Domestic Headlines
With industrial action in the UK showing little signs of stopping, further disruption could weigh on GBP.
Pound Euro (GBP/EUR) Outlook
The Pound Euro exchange rate may weaken this week, as data releases are thin on the ground. As such, investors may focus on domestic headlines in the UK, which could weigh heavily on the Pound.