The Pound to Euro (GBP/EUR) exchange rate ticked higher this week in response to the Bank of England’s (BoE) decision to keep interest rates on hold.
Sterling Strengthens as BoE Avoids Rate Cut
The main catalyst of movement in the Pound this week was undoubtedly the Bank of England’s first rate decision of 2020.
There had been considerable speculation in recent weeks on the possibility of a rate cut from the BoE this month, the uncertainty of which dragged on the GBP/EUR exchange rate through the first half of the session.
However, the BoE ultimately opted to leave interest rates on hold this month, leading the Pound to rally sharply in the latter half of the week.
Also influencing Sterling sentiment this week was some modest Brexit jitters as the UK prepared to formally leave the EU.
Meanwhile the Euro only found limited gains against the Pound in the first half of the week, with upside in the single currency capped by a robust US Dollar.
EUR exchange rates where then undermined at the end of the session with the publication of the Eurozone’s latest GDP figures.
These revealed growth in the block slowed in the last quarter of 2019, following shock contractions in both the French and Italian economies.
How might the UK’s First Steps Outside the EU Impact the Pound?
Looking ahead to next week’s session, it seems clear that a major focus for investors will be Brexit as the UK embarks on life outside of the EU.
While Boris Johnson has promised a ‘new dawn’ for the UK, GBP investors are likely to be more wary, potentially limiting any upside in the Pound.
Across the Channel the Euro may face some headwinds at the start of the week as the Eurozone’s latest retail sales data is expected to report sales growth contracted at the end of 2019.
Also, likely to influence the single currency next week will be the publication of Germany’s latest industrial data.
This could put some pressure on EUR exchange rates if Germany’s vital manufacturing sector continued to show signs of weakness in December.