The Pound Euro (GBP/EUR) exchange rate plummeted last week. The pairing struck a six-week low in response to the UK’s latest inflation figures.
What’s Been Happening: Pound Euro Nosedives on Softening UK Inflation
The Pound (GBP) initially traded in a narrow range against the Euro (EUR) last week. A lack of UK and Eurozone data left both currencies without direction.
The Euro’s negative correlation with the US Dollar (USD), began to pull GBP/EUR lower on Tuesday.
However, the bulk of the pairing’s losses came on Wednesday. The Pound nosedived after the UK’s consumer price index reported inflation cooled more than expected in June.
This prompted GBP investors to hastily reprice expectations for a 50bps rate hike from the Bank of England (BoE) in August and propelled GBP/EUR to a six-week low.
Meanwhile, the Euro was bolstered after Eurozone core inflation was revised higher in July, strengthening European Central Bank (ECB) rate hike bets.
The Pound then mounted a modest recovery at the end of the week. A surprisingly strong UK retail sales print helped Sterling to claw back some of its CPI-driven losses.
Three Things to Watch Out for This Week
- ECB Interest Rate Decision
The ECB will conclude its latest policy meeting this week and is expected to raise rates by 25bps. If the bank signals it is nearing the end of its hiking cycle the Euro may plunge.
- Eurozone PMIs
In advance of the ECB rate decision, the Eurozone published its latest PMIs. A larger-than-expected contraction in private sector growth this month leaves the Euro to start the week on the back foot.
- UK PMIs
The UK published its own PMIs on Monday. While the UK private sector avoided a contraction a weaker-than-expected reading still weighs on the Pound at the start of the session.
Pound Euro Forecast
Movement in the Pound Euro exchange rate is also likely to remain sensitive to BoE speculation. As GBP investors continue to reposition ahead of next week’s decision.