The Pound Euro exchange rate drifted lower this week in erratic trade, which was capped off by the Bank of England’s (BoE) latest interest rate decision.
Pound whipsaws following BoE interest rate decision
The Pound Euro exchange rate initially stumbled this week. The single currency opened the session on the front foot, in response to stronger-than-expected Eurozone GDP and inflation releases.
But these gains proved short-lived, amid suggestions the positive data is unlikely to be enough to push European Central Bank (ECB) into raising rates again.
The GBP/EUR exchange rates came under renewed pressure on Tuesday. The Pound stumbled as the UK’s latest manufacturing PMI revived UK recession fears. While the Euro was buoyed by a surprise fall in Eurozone unemployment.
Sterling continued to trade on the defensive in mid-week trade as a souring market mood made the increasingly risk-sensitive Pound less attractive to investors, at the same time as boosting the Euro’s safe-haven appeal.
Trade in the Pound then proved particularly volatile on Thursday as the BoE delivered its latest interest rate decision.
A kneejerk reaction saw GBP/EUR plunge to a one-week low, seemingly driven by disappointment from some more bullish GBP investors that the BoE opted to play it safe with a 25bps hike this month
However, Sterling was quickly able to recoup the bulk of these losses as markets digested the bank’s policy statement and its signals that the next rate cut isn’t likely to come until 2025.
Closing out the week was the publication of Germany’s latest factory orders release, with a surprise surge helping to bolster the euro.
Will resilient UK GDP bolster Sterling?
Looking ahead, the highlight of next week’s data calendar looks to be the publication of the UK’s latest GDP figures.
The preliminary estimate for second quarter growth is forecast to show the UK economy expanded by another 0.1% between April and June.
The continued resilience of the UK economy in the face of growing headwinds are likely to bolster the Pound as it increases the chances of the BoE raising interest rates again.
In the meantime, the start of next week will see the publication of Germany’s latest industrial production figures. Will a second consecutive contraction in factory output pull the Euro lower on first thing on Monday?
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