The Pound Euro (GBP/EUR) exchange rate tumbled to a four-month low last week, following the Bank of England’s (BoE) latest interest rate decision.
What’s Been Happening: Pound Euro Plunges as BoE Leaves Rates on Hold
The Pound (GBP) initially traded sideways last week. GBP investors were reluctant to reposition ahead of some high-impact UK data events. While the Euro (EUR) faltered amid conflicting statements from European Central Bank (ECB) policymakers.
Sterling then began to come under pressure with the release of the UK’s consumer price index. As a weaker-than-expected inflation print saw the offs odds of a BoE rate hike later in the week, plummet from 80% to below 50%.
The sceptics were then validated on Thursday as the BoE opted to leave rates on hold. The decision reinforced the Pound selling bias, although these losses were tempered somewhat as the BoE left the door open to raising interest rates again in the future.
GBP/EUR then extended these losses again at the end of the week. Lacklustre retail sales data and a worrying drop in the UK’s services PMI weighed heavily on Sterling. While the Euro wavered in response to mixed Eurozone PMI releases.
Three Things to Watch Out for This Week
- Eurozone Inflation
The Eurozone’s latest CPI figures may pull the Euro sharply lower this week. Inflation in the bloc is expected to have slowed sharply this month, which is likely to quash any lingering hopes for another rate hike from the ECB.
- Eurozone Economic Sentiment
Also set to influence EUR exchange rates this week will be the release of the Eurozone’s latest economic sentiment index. Expect to see the Euro stumble if If morale continued to decline this month.
- UK GDP
The only GBP data of note this week will be the UK’s latest GDP figures. However, unless the finalised figures diverge from the previous estimate any impact on the Pound is likely to be negligible.
Pound Euro Forecast
The GBP/EUR exchange rate may be vulnerable to sliding to new multi-month lows over the coming week. Particularly if a bearish mood weakens demand for the increasingly risk-sensitive Pound.