The GBP/EUR exchange rate climbed steadily this week, with the Pound strengthening on the back of a stream of robust UK economic data.
Resilient Data Boosts Sterling
The Pound punched higher against the Euro this week, with a steady stream of resilient economic data helping GBP/EUR to bounce back from a 10-year low.
Kicking things off were the UK’s latest wage growth and inflation figures, which both printed higher than expected, weakening the case for the Bank of England to consider a potential rate cut.
In the mid-week we saw the Euro placed on the defensive in the wake of Germany’s latest GDP figures, as a contraction in the second quarter stoked concerns that Europe’s largest economy could be headed towards a recession this year.
Then on Thursday the publication of the UK’s retail sales figures lit a fire under Sterling, with a surprise expansion in sales growth in July buoying hopes the UK economy may return to growth in the third quarter.
These gains were supported by moves by the UK’s opposition parties to step up efforts to block a no-deal Brexit, with Labour Leader Jeremy Corbyn calling for support for his plan to call a no-confidence vote against Boris Johnson.
Closing out the week was the publication of an interview with the European Central Bank’s Olli Rehn, in which the member of the ECB’s government council hinted at a significant stimulus package from the bank next month, putting more pressure on the Euro.
Will Gloomy PMI Figures Put More Pressure on the Euro?
Looking ahead to next week, we expect to see markets maintain their downside bias towards the Euro as the prospect of substantial stimulus measures from the ECB hangs over the currency.
In fact we may see investors turn even more negative towards the single currency in response to the Eurozone’s latest PMI figures.
These are likely to show that private sector growth in the bloc remains weak this month, with EUR investors likely to be particularly unnerved by another gloomy reading from German.
Meanwhile it looks to be a quiet session in terms of UK economic data next week, likely returning politics to the fore for GBP investors.
This could see the Pound extend its recovery next week if momentum to block a no-deal Brexit continues to grow.