The Pound Euro exchange rate struck a one-month high this week as stronger-than-expected UK data bolstered Bank of England (BoE) interest rate expectations.
Pound bolstered by robust UK data
The Pound Euro exchange rate opened this week on the front foot. This was primarily driven by EUR weakness, however. The Euro was pressured by its negative correlation with the US Dollar, while Sterling struggled to find its own momentum amid limited data
Extending the upside in GBP/EUR on Tuesday was the publication of the UK’s latest jobs report, as June’s record increase in wage growth helped to offset an unexpected rise in unemployment over the same period.
At the same time, a surprise improvement in German economic sentiment, helped the Euro to limit its losses against the Pound.
The appreciation of Sterling then gathered pace in the middle of the week. This came on the back of the UK’s latest consumer price index.
While July’s CPI figures reported headline inflation slowed from 7.9% to 6.8%, core inflation unexpectedly held at 6.9%. Coupled with the record increase in UK wage growth, this bolstered BoE rate hike bets and propelled GBP/EUR to a new one-month high.
After plateauing on Thursday amid a lack of data, the Pound Euro exchange rate was then pulled lower at the end of the week following the publication of the UK’s latest retail sales figures. As sales growth nosedived by 1.2% in July.
Euro to be pressured by weak PMIs?
The Euro could face some resistance next week, with the release of the Eurozone’s latest PMIs.
We have seen a sustained decline in the bloc’s private sector in recent months, a downtrend which is expected to have persisted into August. The single currency could come under particular pressure if the services index slips back into contraction territory for the first time this year.
The end of the week could then see the Euro pressured by the release of Germany’s latest IFO business climate index, as economists expect business morale to have deteriorated for the fourth consecutive month in August.
Meanwhile, the Pound could also face headwinds with the publication of the UK’s own PMIs, assuming the recent slowdown in activity continued this month.
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