The Pound to Euro exchange rate struck higher again this week, as Sterling sentiment continued to be underpinned by Bank of England (BoE) rate hike speculation. 

Pound bolstered by rate hike bets 

The Pound got off to a strong start this week, as GBP investors seized on comments made over the weekend by BoE Governor Andrew Bailey, in which he suggested the bank ‘will need to act’ to curb inflation. 

This was seen as a signal that a rate hike is imminent, with Sterling rising in tandem with the odds for a November hike. 

But a weaker-than-expected UK inflation reading infused some volatility into the Pound in mid-week trade as it prompted GBP investors to revise their expectations for a rate hike when the BoE meets next month. 

The Pound then faced some additional pressure at the end of the week, on the back of some weak UK retail sales and PMI data. 

At the same time, the Euro was side lined by European Central Bank (ECB) officials this week as they reaffirmed the bank’s stance that the recent rise in inflation will be transitory. 

The Euro was then able to rebound in the second half of the week, in spite of the latest Eurozone PMIs printing below expectations. 

ECB rate decision and Eurozone GDP in the spotlight  

Looking ahead to next week’s session, there are a couple of key events on the EUR data calendar which are likely to act as the primary catalysts of movement in the Pound to Euro exchange rate. 

The ECB’s latest interest rate decision will be one such event, with the Euro likely to face some pressure as the bank is widely expected to leave its monetary policy untouched, whilst also maintaining its dovish forward guidance. 

However the bank’s dovish bias largely priced in already, the more impactful release could be the Eurozone’s latest GDP figures. 

These could further undermine EUR exchange rates as the preliminary release is forecast to report a slowing of economic growth in the third quarter. 

Meanwhile, the focus for GBP investors next week will be on the publication of Rishi Sunak’s Autumn Budget. This could limit the appeal of the Pound as the Chancellor is expected to announce only limited spending plans. 

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