Pound Euro (GBP/EUR) Exchange Rate Extends Gains on Wage Data and Inflation
The Pound Euro (GBP/EUR) exchange rate climbed last week by approximately a full percentage point, supported by greater-than-expected UK wage growth and bullish sentiment relating to the Bank of England (BoE)’s monetary policy stance. Meanwhile, Euro (EUR) gains were limited by the currency’s strong negative correlation with the US Dollar (USD).
At the time of writing, GBP/EUR is trading at €1.1712, compared with €1.1588 at the start of Monday’s European session.
Pound (GBP) Buoyed by Bullish BoE Expectations
The Pound (GBP) trended up against the majority of its peers last week, gaining support as key data surprised to the upside.
Toward the start of the week, average wages in the UK were shown to have increased, prompting speculation that the BoE may be encouraged to adopt a more hawkish stance ahead. Consultancy Capital Economics observed that the accelerating wage growth supported the case for one more rate increase from the central bank.
Midweek, evidence of ongoing inflationary pressures supported the argument for further monetary policy tightening. Although headline inflation went down month-on-month – albeit by less than expected – core inflation increased.
Oliver Blackbourn, multi asset portfolio manager at Janus Henderson Investors, said of the release:
‘Stubbornly high core inflation presents a headache for the BoE as it will want to see this less volatile measure decline to suggest that cost pressures are sustainably returning to target.’
GBP/EUR continued to climb on Thursday despite a lack of significant UK data and after a brief overnight tumble, ticked back up on Friday despite weak retail sales figures. July’s sales contracted by 1.2% rather than 0.5% as expected, but experts were hopeful retail activity would improve in the coming months.
Euro (EUR) Muted amid US Dollar Optimism
The Euro was pressured through last week’s session by building support for the US Dollar (USD). The ‘Greenback’ climbed as risk appetite wavered and hawkish rhetoric from the Federal Reserve inspired bullish rate hike hopes.
A consecutive fall in both the German and wider Eurozone ZEW sentiment indexes also weighed upon the single currency on Tuesday, although both releases printed higher than forecast. Elmar Voelker, Senior Fixed Income Analyst at LBBW Research, said of the data:
‘The renewed deterioration in the assessment of the current situation underscores the fact that stabilization is taking place from an extremely weak starting position. Recession concerns remain high.’
On Wednesday, upbeat industrial production data lent the Euro some support, but the currency remained subdued against the Pound. EUR continued to slump into Thursday despite USD headwinds and modest economic growth in the Eurozone – ING analysts lamented that forward-looking indicators were pointing at an economic slowdown in key parts of the Euro area.
At the end of the week, finalised Eurozone inflation data printed as expected. EUR/GBP staged a subdued recovery from a one-month low, trending broadly sideways as USD strength dented Euro prospects once more.
GBP/EUR Exchange Rate Forecast: PMIs, Business Indicator in Focus
Into next week, the Pound Euro exchange rate is likely to trade on the latest PMI data from both the UK and the Eurozone, in addition to Friday’s German Ifo release.
A lack of significant data at the start of the week could leave GBP/EUR to trail sideways, but suspected growth across both of the UK’s key business sectors could subsequently buoy GBP. Meanwhile, Eurozone data is expected to print mixed, with a slowdown in manufacturing forecast.
A fall in US durable goods orders could dent USD, buoying the single currency on Thursday, but a drop in Germany’s Ifo business climate indicator at the end of the week may reverse EUR gains. A speech from the European Central Bank (ECB)’s President, Christine Lagarde, might also influence GBP/EUR trading.