The Pound Euro exchange rate trended broadly lower this week as Sterling was undermined by some dovish comments from a Bank of England (BoE) policymaker.
Pound pressured by dovish BoE comments
The Pound Euro exchange rate opened this week on positive footing. GBP initially firmed amid speculation of another BoE interest rate hike. At the same time, the euro was supported by stronger-than-expected German factory orders.
Sterling then began to falter on Tuesday following comments from BoE Chief Economist Huw Pill, in which he said that speculation that the BoE will begin to cut interest rates by the end of 2024 ‘doesn’t seem totally unreasonable’.
GBP/EUR then remained mostly rangebound in the middle of the week. The Euro was undermined by weaker-than-expected Eurozone retail sales data. While risk-off flows dampened the appeal of the Pound.
Sterling then came under fresh pressure as we entered the second half of the week. The downside was driven by additional comments from Pill as he suggested the BoE doesn’t need to raise interest rates again in order to bring inflation under control.
The Pound then sought to mount a recovery at the end of the session, after the UK’s latest GDP figures beat expectations. However, while the UK avoided a contraction in the third quarter, the fact the economy stagnated still reflected negatively on Sterling.
UK data to extend Sterling selloff?
Looking ahead there are a number of high-impact UK data releases which could pull the Pound lower next week.
Perhaps the most impactful will be the UK’s latest consumer price index. The CPI figures are forecast to report that inflation cooled sharply from 6.7% to 4.9% in October. This is likely to further undermine BoE rate hike bets and could place significant pressure on Sterling.
The UK’s latest jobs report could also drag the Pound lower if September’s figures report unemployment rose while wage growth decelerated.
The at the end of the week, the UK’s latest retail sales could act as the nail in the coffin as October’s release is forecast to report another sizable contraction in sales growth.
Meanwhile, the publication of Germany’s latest ZEW economic sentiment index will be the primary focus for EUR investors next week. Economists forecast sentiment in the Eurozone’s largest economy will have turned positive for the first time since April, potentially propelling the Euro higher in the first half of the week.
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