The Pound Euro (GBP/EUR) exchange rate trended lower last week, amid a softening of Bank of England (BoE) interest rate expectations.
What’s Been Happening: Pound Euro Slips as UK Inflation to Fall ‘Markedly’
The Pound (GBP) got off to a positive start last week. Sterling traded with modest gains courtesy of an upbeat market mood. While the Euro (EUR) was undermined by lacklustre German trade figures.
The GBP/EUR exchange rate went on to strike a two-month high in the first half of the session. This came as the single currency came under further pressure from downbeat Eurozone PPI and retail sales figures.
However, the pairing’s fortunes soured in the middle of the week. The Pound came under heavy selling pressure in the wake of comments from BoE Governor Andrew Bailey.
Speaking to Parliament’s Treasury committee, Bailey suggested UK inflation will fall ‘markedly’ on the next few months, and the BoE is ‘nearer to the top of the [tightening] cycle’.
A downwardly revised Eurozone GDP release then dragged on the Euro through the second half of the week. Although a souring market mood and weakening BoE rate hike bets left the unable to take advantage of this.
Three Things to Watch Out for This Week
- ECB Interest Rate Decision
The European Central Bank’s (ECB) latest interest rate decision will undoubtedly be the highlight of this week’s data calendar. Expect to see the Euro plunge if the bank confirms it has concluded its hiking cycle.
- German Economic Sentiment
EUR exchange rates may be influenced by Germany’s latest ZEW survey. Will a deterioration in economic sentiment pull the Euro lower ahead of the ECB’s rate decision?
- UK Jobs Report
For GBP investors the spotlight will be on the UK’s latest jobs report. If wage growth remained at a record high in July this could revive BoE rate hike bets and lift the Pound.
Pound Euro Forecast
Also likely injecting some volatility into the GBP/EUR exchange rate this week will be the UK’s latest GDP figures. These are expected to report the UK economy contracted in July. Could this reverse any gains stemming from the UK’s jobs report?