The Pound Euro exchange rate retreated from a year-to-date high this week in the wake of the Bank of England’s (BoE) latest interest rate decision.
Pound stumbles following BoE rate decision
The Pound Euro exchange rate opened the week on the front foot. Despite thin trading conditions due to a bank holiday, Sterling was supported by BoE interest rate expectations.
At the same time the Euro faced lingering headwinds from the European Central Bank’s (ECB) dovish interest rate decision the previous week. The downside in the single currency being reinforced by its negative correlation with the US Dollar.
EUR exchange rates faced headwinds in the middle of the week in the wake of comments by the ECB’s Mario Centeno. In which he suggested the bank will start to cut interest rates in 2024.
The GBP/EUR exchange rate then spiked to new four-month high immediately following the BoE’s interest rate decision on Thursday. GBP investors jumped on the bank’s 25bps hike and suggestion a ‘further tightening in monetary policy’ may be warranted if inflationary pressures persist.
However, the Pound quickly rowed back these gains following subsequent comments from BoE Governor Andrew Bailey, who said he expected UK inflation to fall rapidly from April.
Closing out the week was the publication of the UK’s latest GDP figures, with the GBP/EUR exchange rate recouping some ground as they confirmed the UK economy expanded in the first quarter.
Cooling UK wage growth to dent Sterling?
Looking ahead to next week, the primary catalyst of movement for the Pound is likely to be the publication of the UK’s latest jobs report.
March’s report is expected to show domestic unemployment held at 3.8%. However, the greater focus is likely to be the accompanying earning figures.
These are forecast to report a cooling of wage growth at the end of the first quarter. Underwhelming wage figures are likely to decrease the chance of the BoE raising interest rates again in June and could pull the Pound sharply lower in the first half of the week.
Meanwhile, the most high-impact EUR data release is likely to be Germany’s latest ZEW surveys. A rebound in economic sentiment in the Eurozone’s most important economy could offer support to the Euro.
April’s finalised consumer price index will also be in focus for EUR investors. Will confirmation of a slight uptick in inflation lend support to the Euro?
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