Home » Pound Euro exchange rate rocked by ECB’s shock 50bps rate hike

Pound Euro exchange rate rocked by ECB’s shock 50bps rate hike

The Pound Euro exchange rate continued to trade in a wide range this week, with the pairing fluctuating between €1.18 and €1.16 as the European Central Bank (ECB) surprised markets by raising interest rates at a faster-than-expected pace. 

Euro spikes following ECB interest rate decision 

The Pound Euro exchange rate initially firmed this week. Sterling rallying amid speculation the Bank of England (BoE) may accelerate its current tightening cycle. 

However the Euro was quick to push back, with the single currency garnering notable support amid reports the ECB might be considering a 50bps interest rate hike this week.  

At the same time, the pound was undermined by a mixed UK jobs report, which revealed real pay continued to fall. 

The GBP exchange rate then met additional pressure on Wednesday with the publication of the UK’s consumer price index on Wednesday as another spike in inflation raised fresh concerns over the cost of living crisis. Meanwhile the Euro weakened in midweek trade amid fears Europe may soon be facing a gas shortage. 

The second half of the week saw the ECB announce its latest interest rate decision. The Euro initially stormed higher as the bank shocked markets with a 50bps hike, before quickly sputtering out after ECB President Christine Lagarde’s accompanying comments struck a more cautious tone than EUR investors had hoped for. 

Closing out the week was the publication of the UK’s latest retail sales figures, with Sterling closing the session on a gloomy note after June’s figures reported another contraction in sales growth. 

Eurozone GDP in the spotlight  

Looking ahead to next week, a key catalyst of movement in the GBP/EUR exchange rate is likely to be the publication of the Eurozone’s latest GDP figures. 

EUR investors are likely to keep a close eye on the first second quarter estimate for any signs of a slowdown. Expect to see the Euro nosedive if growth stalled or even contracted in Q2. 

Another high-impact EUR data release will be the Eurozone’s latest CPI figures. July’s preliminary figures are forecast inflation in the bloc will have risen to a new record high of 8.8%. 

This is likely to keep the pressure on the ECB to continue raising interest rates and could offset a lacklustre GDP print. 

Meanwhile, with notable GBP data thin on the ground next week movement in the pound is likely to be driven by UK political developments. Will the uncertainty of the leadership race infuse fresh volatility into GBP exchange rates? 

If you’ve got a GBP/EUR currency transfer to arrange, the team at TorFX are on hand to help. Get started now to access bank-beating exchange rates and fast, free transfers.  

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