The Pound Euro exchange rate traded in a wide range this week, with a record jump in UK wage growth and a notable slump in the US Dollar infusing volatility into the pairing.
Pound finds short-lived gains on record UK pay growth
The Pound Euro exchange rate initially stumbled this week. A downbeat mood sapped GBP sentiment, before some hawkish comments from Bank of England (BoE) Governor Andrew Bailey quickly revived Sterling.
GBP/EUR then spiked on the back of the UK’s latest jobs report. While unemployment unexpectedly rose in May, a record increase in wage growth reinforced expectations for another 50bps rate hike from the BoE in August.
The Euro put up little resistance to the Pound, with EUR exchange rates faltering after Germany’s latest ZEW indicator reported economic sentiment in the Eurozone’s largest economy fell to a seven-month low.
These gains were then erased in the middle of the week, with the GBP/EUR exchange plunging around a cent on Wednesday. This was driven primarily by the Euro’s negative correlation with the US Dollar after the latter nosedived in response to weak inflation figures.
A stronger-than-expected UK GDP print then helped the Pound mount a modest recovery in the second half of the week, leaving GBP/EUR to close the week almost unchanged from its opening levels.
Strong UK inflation to boost BoE rate hike bets?
Turning to next week’s session, the main catalyst of movement in the Pound Euro exchange rate is likely to be the publication of the UK’s consumer price index.
June’s CPI release will be watched closely by GBP investors after May’s release showed inflation held steady at 8.7%. If inflation continued to run hot last month this could turbocharge BoE rate hike bets.
Although there’s a risk that this could lead the Pound to stumble if it gives rise to recession fears again.
Also of note to GBP investors will be the release of the UK’s latest retail sales figures. Will a contraction in sales growth last month drag Sterling lower at the end of the week?
Next week will also see the publication of the Eurozone’s latest CPI figures, but barring a notable divergence from the preliminary reading, June’s finalised figures their impact on the Euro may bemay have a limited impact on the Euro.
Elsewhere, a lull in notable EUR data releases could see movement in the single currency driven primarily by its negative correlation with the US Dollar.
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