This week saw the Pound Euro exchange rate strike its worst levels since the end of May, in response to the Bank of England’s latest interest rate decision. 

Pound slumps as BoE leaves rates on hold 

The Pound Euro exchange rate got off to a slow start this week. Sterling was trapped in a narrow range as GBP investors erred on the side of caution ahead of a busy week for UK data. While conflicting remarks from a couple of European Central Bank (ECB) policymakers stifled demand for the Euro. 

GBP/EUR then tumbled in the middle of the week after the release of the UK’s latest consumer price index. A weaker-than-expected inflation print saw GBP investors hastily reprice their BoE rate hike expectations. With the odds of a hike this month tumbling from 80% to below 50%. 

These losses were then extended on Thursday as the BoE ultimately opted to leave interest rates on hold. Although the Pound’s losses look to have been tempered as the BoE left the door potential to potentially raising interest rates again in the future. 

The end of the week then saw GBP/EUR test new lows with the release of lacklustre UK retail sales and PMI data, while the Euro was supported as its own PMIs outperformed expectations. 

Eurozone inflation to drive EUR movement? 

Turning to next week’s data calendar, the highlight looks to be the publication of the of the Eurozone’s latest inflation figures. 

September’s preliminary CPI figures could pull the euro lower if they report inflationary pressures in the Eurozone continue to ease, as this would also most certainly put the kibosh on any lingering hopes for another interest rate hike from the European Central Bank (ECB). 

In the meantime, EUR exchange rates may be influenced by the release of Germany’s latest IFO business climate index. If business morale continued to deteriorate this month this could place even more pressure on the single currency. 

Meanwhile, UK data is thin on the ground through most of next week, which may leave movement in the Pound primarily driven by market sentiment. 

The only UK release of note will be the final second quarter GDP figures, but barring any divergence from the previous estimate any impact on Sterling may be negligible.  

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