The Pound Euro exchange rate struck its worst levels since mid-May this week, in response to some lacklustre UK data. 

Pound pressured by disappointing economic releases 

The Pound Euro exchange rate initially ticked higher this week, supported by some hawkish comment from Bank of England Chief Economist Huw Pill. 

However, these gains proved short-lived, with Sterling sentiment faltering on Tuesday in response to the UK’s latest jobs report as it stoked concerns the labour market is slowing. 

At the same time, the Euro mounted a convincing comeback in response to Germany’s latest indicator of economic sentiment smashed expectations. October’s index struck its best levels since April, stoking hopes that Germany’s economy may be turning a corner. 

GBP/EUR held steady in mid-week trade. The Pound found modest support after the UK’s consumer price index reported domestic inflation was hotter-than-expected in September. 

However, the GBP/EUR selloff then resumed in the second half of the week, with the increasingly risk-sensitive Pound coming under fire as market sentiment soured. While the same risk-off flows bolstered the appeal of the safe-haven Euro. 

Closing out the week was the publication of the UK’s latest retail sales data. September’s figures reported a much larger-than-expected contraction in sales growth, which piled more pressure on Sterling. 

ECB rate decision in focus 

Turning to next week it’s likely that the ECB’s latest interest rate decision will act as the main catalyst of movement in the GBP/EUR exchange rate. 

The ECB is widely expected to leave interest rates on hold again this month. However, in light of recent events in the Middle East, and concerns over the possible ramifications this could have for inflation, we may see the bank suggest it is open to raising rates if necessary, potentially lifting the Euro in the process. 

Ahead of the ECB’s rate decision EUR exchange rates may be influenced by the Eurozone’s latest PMI figures. Expect to see the Euro face resistance at the start of the week if private sector activity in the Eurozone continued to contract this month. 

The UK will also publish its own PMIs on Tuesday. The UK’s private sector is also expected to have remained in the doldrums this month, but the Pound could come out ahead of the Euro if the decline in activity is more modest in scope. 

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