The Pound Euro exchange rate saw continued volatility this week, sliding to a two-week low before rebounding to end the week higher.
Pound recovers as markets scale back ECB rate hike bets
The Pound was subdued at the start of the week, wavering in a narrow range, as the UK bank holiday Monday limited GBP movement.
Sterling then declined on Tuesday as a lack of economic data left it vulnerable to losses.
Meanwhile, the Euro shrugged off an unexpected decline in German consumer confidence on Tuesday to climb against the Pound. A sharp downside in the US Dollar boosted the single currency, due to EUR’s strong negative correlation with USD.
After touching a two-week low against the Euro, Sterling began to stage a recovery midweek. An improving market mood aided the increasingly risk-sensitive Pound, as did ongoing Bank of England (BoE) interest rate rise bets.
EUR came under pressure as USD strengthened, while a pullback in European Central Bank (ECB) bets added to the Euro’s woes.
ECB policymaker Isabel Schnabel – considered one of the more hawkish officials on the Governing Council – sounded noncommittal when talking about more rate hikes.
In addition, although the Eurozone’s headline inflation rate beat forecasts, the ECB’s July meeting minutes showed concern over the health of the Eurozone economy.
A risk-on mood kept GBP/EUR afloat on Friday, with the currency pairing currently trading around 0.3% up on the week.
Poor Eurozone data to see the Euro slide?
Next week, the recent lack of UK data is set to continue, potentially limiting the Pound’s movements.
The only release of note will be the final services PMI on Tuesday. The preliminary results showed a shock contraction in UK service sector activity. Could an upward revision see Sterling rise higher? Or will confirmation of a downturn pressure the Pound?
Meanwhile, the Euro could face selling pressure if upcoming Eurozone data prints as expected.
Economists are forecasting a 4.5% contraction in German factory orders and a 0.4% drop in industrial production in July.
Eurozone retail sales are also expected to have shrunk in the same month, with a 0.3% fall forecast. If these data releases print as anticipated, growing worries about the health of the bloc’s economy could see EUR slide.
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