The Pound Euro exchange rate tumbled this week. The pairing striking a new multi-week low in the wake of the Bank of England’s (BoE) and European Central Bank’s (ECB) latest interest rate decisions.
GBP/EUR plummets as ECB Proves more hawkish than the BoE
The GBP/EUR exchange rate was trapped in a narrow range through the first half of this week, as upbeat Eurozone data offset some stronger-than-expected UK releases.
While GBP investors welcomed an uptick in wage growth and a cooling of inflation, this was not enough to offset a better-than-expected recovery in German economic sentiment.
The bulk of the movement in the GBP/EUR exchange rate was focused in the second half of the week, following the latest BoE and ECB interest rate decisions.
This saw the Euro soar higher after the ECB hiked rates by 50bps and signalled that the bank would need to continue to raise rates at a similar pace for the foreseeable future in order to return inflation to its 2% target.
In contrast, while the BoE also raised interest rates by 50bps, GBP investors were rattled by a particularly dovish split within the Monetary Policy Committee.
With two policymakers calling for rates to be left unchanged, investors started to reprice their expectations for future rate hikes as economists suggested this might signal UK interest rates will peak below recent forecasts.
The GBP/EUR exchange rate then extended these losses at the end of the week on the back of some disappointing UK retail sales figures and upbeat Eurozone PMIs.
Upbeat German business sentiment to buoy the Euro?
Looking ahead to the start of next week, the publication of Germany’s latest IFO survey could help push the Euro higher amid forecasts business sentiment in the Eurozone’s largest economy will have continued to improve this month.
Any upside in the single currency could then be reinforced by the publication of the Eurozone’s latest consumer confidence figures, assume this also improved in December.
Meanwhile the only UK data of note will be the finalised release of the UK’s third quarter GDP figures.
These are expected to confirm the UK economy contracted in Q3 and barring any upward revision to the release are unlikely to offer much support to the Pound.
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