The Pound Euro exchange rate fluctuated this week, with Sterling managing to regain its losses after the European Central Bank (ECB) left interest rates unchanged.
Euro slips as ECB leaves rates on hold
The Pound Euro exchange rate wavered early in the week as both currencies came under pressure following gloomy PMI data.
The latest surveys showed that business activity continued to contract in both the UK and the Eurozone this month, raising recession fears.
Although the Eurozone figures were worse than the British ones, signs of a cooling UK labour market prevented the Pound from capitalising against the Euro.
Midweek, the single currency found some success after German business morale improved more than forecast. Meanwhile, a souring market mood weighed on the increasingly risk-sensitive Pound.
The Euro then relinquished these gains on Thursday after the ECB hit pause on its policy tightening cycle after 15 months of consecutive rate hikes.
ECB President Christine Lagarde also indicated that the bank expects inflation to continue cooling, while warning that the Eurozone economy will likely ‘remain weak’. This fuelled speculation that the ECB is done raising rates. GBP/EUR rallied in response.
This saw the Pound Euro exchange rate end the week broadly where it had started, with the currency pairing wobbling on Friday morning in the absence of any fresh high-impact data releases.
Bank of England decision to dent the Pound?
Next week it’s the Bank of England’s (BoE) turn in the spotlight, with the British central bank meeting on Thursday to set interest rates.
Economists expect the BoE to leave interest rates unchanged again, which could sap the Pound’s appeal. However, hints that the bank is open to more rate rises in the future may help to cushion any downside.
Ahead of the BoE decision, two high-impact Eurozone releases are due out: third-quarter GDP growth and October’s consumer price index.
According to forecasts, inflation in the bloc is set to have cooled rapidly again from 4.3% to 3.4%. This could further weigh on ECB interest rate expectations, thereby pushing EUR lower.
In addition, the Eurozone economy is set to have contracted by 0.1% in the third quarter, which may raise recession fears and add to the Euro’s woes.
Overall, next week could bring more big swings in the Pound Euro pairing as high-impact events spark volatility.
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