Pound Euro exchange rate fluctuates on ECB rate speculation

The Pound to Euro exchange rate traded in a wide range this week after European Central Bank (ECB) interest rate speculation helped to reverse an initial drop in the single currency. 

Euro bolstered by ECB rate hike bets 

The Euro initially got off to a poor start this week, amidst concerns over the trajectory of the German economy. 

This followed a warning from Germany’s Bundesbank that German economic growth in 2021 is likely to ‘significantly’ miss its previous forecast, as well as the announcement from Germany’s Economy Minister Peter Altmaier, that the government would be lowering its 2021 GDP forecasts from 3.5% to 2.6%. 

However, the Euro then found support on Thursday, following the European Central Bank’s latest policy meeting, after ECB President Christine Lagarde acknowledged that inflation will run hotter for longer than previously thought, sparking some speculation over potential rate hikes in the future. 

The euro was then able to largely maintain these gains through to the end of the session after the latest Eurozone GDP figures printed above expectations in the third quarter. 

Meanwhile, the Pound opened this week on some solid foot, being bolstered by Brexit optimism at the start of the session. 

However, a subsequent reversal in Brexit sentiment, alongside fading Bank of England (BoE) interest rate hike expectations quickly clipped Sterling’s wings. 

GBP exchange rates then remained depressed through the second half of the week, in the wake of Chancellor Rishi Sunak’s Autumn Budget. 

The Budget appeared to receive a lukewarm response from GBP investors, particularly after an influential thinktank suggested it could leave millions of people worse off in 2022. 

BoE interest rate decision centre stage 

Turning to next week’s session, it seems safe to assume that the BoE’s latest interest rate decision will act as the main catalyst of movement in the Pound to Euro exchange rate. 

While the bank is no longer expected to hike interest rates in November, the BoE’s forward guidance could rock the Pound, depending on whether or not its signals a rate hike by the end of 2021 is still on the cards. 

In addition GBP investors will also be looking for any hints regarding the bank’s plans for in 2022, with the Pound likely to draw some notable support if the bank hints at multiple hikes next year as well. 

Meanwhile the publication of Germany’s latest industrial data will likely be the focus for EUR investors next week, with the Euro potentially firming if factory orders and industrial production rebounded as expected in September. 

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