Pound Euro exchange rate rallies to 21-month high on renewed BoE rate hike expectations

The Pound to Euro exchange rate enjoyed strong support this week, as Sterling was underpinned by fresh speculation that Bank of England might hike interest rates in December. 

GBP/EUR storms higher as Upbeat UK data revives speculation for a December rate hike  

The Pound has made some notable gains against the Euro this week, with the GBP/EUR exchange rate soaring to a 21-month high, amidst renewed expectations the BoE will hike interest rates by the end of 2021. 

This was initially triggered by some hawkish comments from BoE Governor Andrew Bailey, before being quickly reinforced by a stronger-than-expected jobs report. 

The uptick in Sterling then accelerated sharply in mid-week trade with the release of the UK’s consumer price index, after it revealed domestic inflation rocketed up to a decade high of 4.2% in October, piling even more pressure on the BoE to act. 

While the Pound fell victim to some profit taking in the second half of the week, the GBP/EUR exchange rate was able to regain some traction at the very end of the session after the UK’s latest retail sales figures printed above expectations. 

The Euro, meanwhile, stumbled out of the gates this week, as it was undermined by a lacklustre Eurozone industrial production reading. 

The single currency then faced additional pressure throughout the session in response to dovish comments from European Central Bank (ECB) officials, particularly from President Christine Lagarde, who suggested a premature tightening of policy would ‘cause far more harm than it would do any good’. 

UK and Eurozone PMIs in the spotlight 

Looking ahead, the publication of the latest PMI releases from both the UK and Eurozone will likely act as the main catalyst of movement in the Pound Euro exchange rate next week. 

The UK figures could see Sterling walk back some of its recent gains, as economists forecast activity in both the services and manufacturing sectors will have slowed this month. 

However, the Euro could face even more pressure as growth in the Eurozone’s private sector is likely to have slowed even faster amidst the sharp rise of coronavirus cases which has forced some European countries to re-introduce some restrictions. 

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