The Pound Euro exchange rate witnessed notable volatility this week, spiking to a one-year high before slumping to a nine-day low, as worrying PMI data rocked both currencies.

Pound slides after UK business activity contracts

After a choppy start to the week, the Euro eventually began to trend lower. Worries about the health of the German economy dragged on EUR, along with the single currency’s negative correlation with a rising US Dollar.

Midweek brought turbulence to the currency markets. After the Eurozone’s PMIs showed a deeper-than-expected contraction in private sector activity, EUR dropped to a one-year low against GBP.

However, the PMI contained signs of stubborn inflation, which boosted European Central Bank (ECB) interest rate hike bets. This, along with a souring market mood, aided the Euro’s recovery.

Meanwhile, the Pound initially climbed higher against the Euro this week despite struggling elsewhere.

After hitting a one-year high on Wednesday morning, GBP/EUR then plummeted as the UK’s PMI surveys missed forecasts. Business activity in the UK unexpectedly shrank in August, raising recession fears.

The PMIs also contained signs of easing inflation, which dampened Bank of England (BoE) rate hike expectations.

New data from the Confederation of British Industry (CBI) added to Sterling’s woes. Retail trade slumped at its fastest pace in two years this month. The Pound Euro exchange rate fell to a nine-day low.

At the very end of the week, Sterling recouped some losses after a larger-than-forecast fall in German business morale dented the Euro. However, GBP/EUR remained down overall.

Eurozone inflation in focus

Turning to next week’s session, the Eurozone’s latest consumer price index is the main focus for EUR investors.

Economists expect both headline and core inflation to cool, which could dent ECB rate hike bets and therefore weigh on the common currency. However, any signs that inflation remains sticky could conversely lift EUR.

Before the CPI, mixed German data could see the Euro waver. While German consumer confidence is forecast to have improved heading into September, July’s retail sales are on track to show a second straight month of decline.

As for the Pound, next week’s data calendar is notably thin. This could leave Sterling to trade without a clear direction.

Amid the absence of market-moving data releases, GBP investors could turn to domestic headlines for fresh impetus. Any ongoing concerns about the UK’s cost-of-living crisis or speculation on a more dovish approach from the Bank of England could weigh on the Pound.

If you’ve got a GBP/EUR currency transfer to arrange, the team at TorFX are on hand to help. Get started now to access bank-beating exchange rates and fast, free transfers.