The Pound Euro exchange rate climbed to a two-week high this week, with Sterling finding significant support on the back of some surprisingly hawkish remarks from Bank of England (BoE) policymakers.
Pound strengthens on hawkish BoE remarks
The Pound Euro exchange rate was initially subdued this week. The single currency was muted following a contraction in German producer prices. While a lull in UK data left Sterling to trade sideways.
GBP/EUR then shot higher on Tuesday after BoE policymakers struck a hawkish tone as they testified before Parliament’s Treasury committee. BoE Governor Andrew Bailey downplayed interest rate cut speculation, while his colleagues Dave Ramsden and Catherine Mann hinted more rate hikes may be necessary.
Sterling sentiment was then sapped in mid-week trade, after Chancellor Jeremy Hunt unveiled his Autumn Statement. GBP investors appeared unimpressed by his plans for growth. While also being unnerved by the Office of Budget Responsibility’s (OBR) accompanying forecasts, as it slashed its 2024 growth outlook from 1.8% to 0.7%.
The Pound Euro exchange rate then rallied again in the second half of the week. The Euro was undermined by the minutes from the European Central Bank’s (ECB) latest policy meeting as they highlighted concerns over the Eurozone’s economic outlook.
At the same time, GBP exchange rates rallied in response to a surprisingly positive PMI releases, which helped to ease UK recession fears.
Cooling Eurozone inflation to weigh on the Euro?
Turning to next week, the Eurozone’s latest consumer price index is likely to be centre stage.
November’s preliminary CPI figures may report that inflation in the bloc continued to cool. If this is seen as pushing the ECB to start discussing when to start cutting interest rates, this could cause the Euro to plunge.
The latest Eurozone economic sentiment index could also influence EUR exchange rates next week, with the Euro vulnerable to losses if morale deteriorated again this month.
Meanwhile, in the absence of any notable UK economic data any movement in the Pound may be tied to market sentiment. Could a broadly upbeat market mood help to underpin the increasingly risk-sensitive currency?
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