This week saw the Pound Euro exchange rate trend broadly higher after the single currency was undermined by a surge in the US Dollar.
Euro punished by USD strength
The Pound Euro exchange rate fluctuated through the first half of this week. The Euro initially faced resistance on Monday after Germany’s latest IFO business climate index reported morale continued to deteriorate this month.
GBP/EUR then quickly fell back amid growing concern over the UK’s economic outlook as accountancy giant KPMG and ratings agency S&P Global Ratings warned of potential recession risks in the second half of 2023.
However, in the middle of the week the Euro’s faced renewed pressure. EUR exchange rates pressured by both a fall in German consumer confidence as well as the single currency’s negative correlation with a soaring US Dollar.
This briefly saw GBP/EUR climb to a one-week high, before a pullback in USD exchange rates gave the Euro breathing room again.
Closing out the week was the publication of the Eurozone’s latest consumer price index. September’s preliminary figures showed inflation in the bloc easing at a faster-than-expected pace. Despite this however, the Euro was able to extend its recovery amid a continued pullback in the US Dollar.
At the same time, GBP investors appeared to shrug off an upwards revision to UK growth in the first quarter.
Will a rebound in Germany factory orders be enough to revive the Euro?
Likely acting as the main catalyst of movement in the Pound Euro exchange rate will be the publication of Germany’s latest factory orders release.
Economists are predicting order growth will have rebounded last month, after a truly abysmal print in July. As a key engine of growth in the Eurozone’s largest economy, this could help to revive the Euro’s fortunes.
In the meantime, EUR exchange rates may also be influenced by the Eurozone’s latest PMIs, if September’s finalised figures deviate from the preliminary releases.
The only GBP data of note next week will be the UK’s own PMIs, but barring an upwards revision to service sector activity these are likely to reinforce the gloomy outlook for the UK economy and may drag on the Pound.
Elsewhere it’s likely the increasingly risk-sensitive currency could be influenced by market sentiment. With a cautious mood likely to limit Sterling’s upside potential.
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