Home » Pound Euro exchange rate rallies to three-week high on UK economic optimism

Pound Euro exchange rate rallies to three-week high on UK economic optimism

The Pound Euro exchange rate jumped by over a cent this week, amid hopes that the UK’s current recession will be milder than first feared. 

Pound soars on hopes for mild UK recession 

The Pound got off to a slow start this week, as GBP investors were left disappointed after Prime Minister Rishi Sunak quashed rumours the UK government might pursue a Swiss-style trade deal with the EU. 

The GBP/EUR exchange rate then rallied sharply in the middle of the week as stronger-than-expected PMI figures helped ease fears over the depth of the recession facing the UK. 

The news that the Supreme Court had ruled that the Scottish government cannot legally call a second independence referendum without Westminster’s approval appeared to underpin the pound as it raced higher. 

These gains were then extended in the latter half of the week by some hawkish comments from several Bank of England (BoE) policymakers. 

Meanwhile, the Euro’s negative correlation with the US Dollar lent support to EUR exchange rates through the first half of the week amid a clear USD selling bias. 

The single currency was also underpinned by some a number of hawkish speeches by European Central Bank (ECB) policymakers, although this was slightly offset by some dovish minutes from the bank’s October meeting. 

Elsewhere, ongoing concerns over the war in Ukraine and its impact on the Eurozone economy left the Euro vulnerable against a strengthening Pound.  

Could another spike in Eurozone inflation buoy the Euro? 

The highlight of next week’s data calendar will highly likely be the publication of the Eurozone’s consumer price index. 

November preliminary CPI release could see the Euro strengthen if Eurozone inflation is reported to have climbed again after hitting a record high in October, as this is likely to put more pressure on the European Central Bank (ECB) to deliver another 75bps rate hike next month. 

In the meantime, EUR exchange rates are likely to be sensitive to developments regarding the war in Ukraine, with any signs of further escalation of the conflict likely to weigh on the Euro. 

Meanwhile, the data calendar is looking spare for GBP investors next week, with only a couple of low impact releases scheduled for publication. 

As a result, any movement in the Pound is likely to be linked to domestic headlines. Any signs of more economic hardship or disruption could weigh on Sterling. 

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