Pound Euro exchange rate strengthens as Eurozone data disappoints

The Pound Euro exchange rate climbed back above €1.15 this week, in response to some underwhelming Eurozone data releases. 

Euro undermined by lacklustre data 

The Pound Euro exchange rate opened this week on strong footing. Sterling was bolstered by an improving market mood, while the Euro was undermined by data showing a dramatic contraction in Eurozone industrial production in March. 

The Pound then faltered on Tuesday with the release of the UK’s latest jobs report. March’s figures reported a surprise uptick in unemployment, while wage growth also lagged behind forecasts. 

However, the Euro was unable to capitalise on Sterling’s weakness as Germany reported a sharp drop in economic sentiment this month, amid fears the Eurozone’s largest economy is facing a mild recession. 

GBP/EUR then rebounded in mid-week trade as the Eurozone’s latest consumer price index saw inflation in the bloc come in slightly below forecast on a monthly basis. 

At the same time, the Pound firmed as Bank of England (BoE) Governor Andrew Bailey, suggested UK inflation could remain elevated due to second-round effects from rising wages. Stoking hopes for another rate hike from the BoE later in the year. 

The GBP/EUR exchange rate was then able to consolidate above €1.15 in the second half of the week as the Euro’s negative correlation with the US Dollar kept it on the back foot. 

All eyes on UK inflation 

Turning to next week’s session the spotlight is likely to be on the publication of the UK’s own CPI figures. 

As the BoE highlighted following its most recent interest rate decision, April’s CPI release is expected to mark a sharp cooling of inflation as government support for energy bills kicked in. 

If inflation decelerates as much as some economists predict this will relieve pressure on the BoE to raise interest rates again and could pull the Pound lower. 

Also influencing GBP exchange rates will be the UK’s latest PMIs. May’s preliminary figures may lend support to Sterling if services sector activity remains as robust as it was in April. 

The Eurozone’s own PMI figures could also provide a leg up to the Euro in the first half of the week, if private sector activity in the bloc also remained strong. 

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