The Pound Euro exchange rate softened this week, retreating from a three-month high to hit a one-week low, as stronger-than-expected Eurozone data lifted the single currency.
Euro strengthens as economic data exceeds forecasts
The Euro got off to a strong start last week as several European Central Bank (ECB) policymakers made rather hawkish remarks ahead of the interest rate decision next week.
Meanwhile, Sterling stumbled after Federal Reserve rate hike bets rattled markets, which put pressure on the riskier Pound versus the safer Euro.
The common currency then enjoyed a raft of positive data releases. Germany factory orders and industrial production both exceeded expectations, while the Eurozone’s latest estimate for GDP growth in the third quarter was revised up from 0.2% to 0.3%.
Sterling was able to recoup some losses as news of a UK-US gas deal cheered GBP investors. At the same time, aggressive comments from Russian President Vladimir Putin saw EUR trim its gains.
However, worries about the intensifying wave of industrial action sweeping across Britain put pressure on the Pound once again. In particular, markets fear that planned rail strikes over the Christmas period could hammer the UK’s already-struggling hospitality sector.
GBP/EUR then wavered in a narrow range at the end of the week as a lack of European economic data muted both currencies.
Interest rate decisions to trigger volatility?
Looking at the week ahead, expect to see some big movements in the Pound Euro exchange rate as both the ECB and the Bank of England (BoE) are set to raise interest rates.
Markets expect both central banks to hike rates by half a percentage point. If either opts for a steeper rise then it could boost the respective currency, while hints about future monetary policy decisions could also trigger movement.
Ahead of the rate decisions we also have some high-impact economic data.
Monday kicks off with the UK’s latest GDP report. An expected recovery in October could boost Sterling.
Britain’s labour market report is due the following day. The Pound could rise if wage growth continues to accelerate, as this may prompt more hawkish action from the BoE. However, a forecast rise in the unemployment rate might limit any upside.
At the same time, the Euro could firm if Germany’s latest economic sentiment index improves as expected.
UK inflation is also due before the BoE decision. If it rises or falls more than forecast, GBP could strengthen or weaken, respectively.
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