The Pound Euro (GBP/EUR) exchange rate struck a one-month high last week, as stronger-than-expected UK data bolstered Bank of England (BoE) interest rate expectations.
What’s Been Happening: Pound Euro Buoyed by BoE Rate Hike Bets
The Euro (EUR) opened last week’s session on the back foot as it was pressured by its negative correlation with the US Dollar (USD). Meanwhile, the Pound (GBP) struggled to attract support amid limited UK data.
The UK data drought came to an end on Tuesday, with Sterling beginning to find its own strength after a record rise in UK wage growth offset a shock rise in domestic unemployment in June.
At the same time, the Euro’s losses were kept in check on Tuesday by a surprise improvement in German economic sentiment.
The GBP/EUR exchange rate was then propelled to a one-month high in the middle of the week. The jump was driven by the UK’s latest consumer price index. While July’s CPI figures reported headline inflation slowed from 7.9% to 6.8%, core inflation remained stubbornly high at 6.9%.
Combined with the record rise in wages, the inflation figures bolstered BoE rate hike bets.
A sharper-than-expected contraction in UK retail sales then saw the Pound Euro exchange rate slip from its best levels at the end of the week.
Three Things to Watch Out for This Week
- Eurozone PMIs
The Eurozone’s latest PMI figures are expected to report activity in the bloc’s private sector continued to slow this month. Will this lead the Euro to weaken on Wednesday?
- UK PMIs
The UK’s latest PMIs figures are expected to be equally gloomy, which could also apply pressure to the Pound in the middle of the week.
- ECB Lagarde Speech
European Central Bank (ECB) President Christine Lagarde will speak at the Federal Reserve’s annual Jackson Hole Symposium on Friday. If she hints the ECB is nearing the end of its hiking cycle expect to see the Euro plunge.
Pound Euro Forecast
Also impacting the Pound Euro exchange rate at the end of the week will be Germany’s latest IFO business climate index. Will another decline in morale weigh on the single currency?