The Pound Euro exchange rate traded in a wide range this week, with the pairing briefly striking a one-month low amid a gloomy outlook for the UK economy.
Pound undermined by UK economic outlook
Trade in the Pound Euro exchange rate was mixed though the first part of the week. Sterling’s initial rally quickly ran out of steam amid ongoing concerns over the UK’s economic outlook.
At the same time, the Euro was subdued ahead of the European Central Bank’s (ECB) annual Sintra Forum on Central Banking. Before strengthening on the back of ECB President, Christine Lagarde’s opening remarks, in which she suggested more action would be needed to return inflation to the bank’s 2% target in ‘a timely manner’.
The GBP/EUR exchange rate then faced heavy selling pressure in mid-week trade, following a panel with Lagarde and Bank of England (BoE) Governor Andrew Bailey.
While the Euro rose as Lagarde reiterated the ECB’s commitment to a July rate hike, hawkish comments from Baily had an adverse impact on the Pound.
His comment’s suggesting the BoE would ‘do what is necessary’ to combat inflation did little to ease fears that overtightening could tip the UK into a recession.
However, the Euro then gave some ground in the latter half of the week as the single currency was pressured by its negative correlation with the US Dollar and weaker-than-expected Eurozone inflation figures.
Robust German industrial data to boost the euro?
Looking ahead to next week’s session a key catalyst of movement for the Euro may be the release of Germany’s latest factory orders and industrial production figures.
A robust performance by Germany’s vital industrial sector in May could improve the country’s economic outlook and help to strengthen the Euro.
In the meantime, however, the single currency could face some resistance with the release of the Eurozone’s latest PMIs.
June’s finalised releases are expected to confirm the bloc’s private sector had an abysmal end to the second quarter. Could this apply pressure to the euro through the first half of the week?
Meanwhile, the UK’s own PMIs also look to make for disappointing reading and may limit demand for the Pound through the first part of the week.
Otherwise, the focus for GBP investors is likely to remain on the UK’s economy, potentially leading Sterling to extend its losses if the outlook remains gloomy.
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