The GBP/EUR exchange rate traded in a wide range this week, mostly as a result of rising speculation the Bank of England (BoE) could cut interest rates later this month.
BoE Rate Speculation Undermines the Pound
The Pound faced some notable headwinds this week, falling sharply against the Euro in the first half of the session as the odds of a January rate cut from the BoE spiked above 60%.
This came on the back of a surprise contraction in UK GDP in November as well as some weak domestic inflation figures.
However the GBP/EUR was able to claw back some of its losses through the latter half of the week, with Sterling sentiment improving in spite of some renewed Brexit uncertainty and underwhelming retail sales figures.
Meanwhile, after a strong start to the session, the euro faltered in the mid-week as German’s full-year GDP figures revealed growth in the Eurozone’s largest economy slowed to a six-year low in 2019.
EUR exchange rates then remained on the defensive through the second half of the session as demand for the safe-haven currency was weakened by a resurgent US Dollar.
ECB Policy Meeting to Focus on Bank’s Strategic Review?
Looking ahead to next week, the main catalyst of movement in the Pound to Euro exchange rate is likely to be the European Central Bank’s (ECB) first policy meeting of the year.
The ECB is widely expected to keep interest rates unchanged at this month’s meeting, with analysts predicting the bank may strike a slightly less dovish outlook under Christine Lagarde.
But it will be the ECB’s discussion pertaining to its 2020 strategic review which is likely to dominate the news flow as EUR investors look for any signs the bank could alter its inflation targets.
Meanwhile, the Pound could face some headwinds at the start of next week with the publication of the UK’s latest employment report.
This is expected to show that UK wage growth continued to slow in November, weighing on Sterling as it puts more pressure on the BoE to pursue an immediate rate cut.