The Pound Euro exchange rate struck an 11-week high this week as a sharper-than-forecast cooldown in Eurozone inflation weighed heavily on the Euro.
Euro slides as Eurozone inflation cools more than forecast
The Euro was on the defensive at the start of the week as European Central Bank (ECB) President Christine Lagarde warned about the weakness of the Eurozone economy.
In contrast, the Pound drew support from recent hawkish commentary from Bank of England (BoE) officials. Rate-setter Jonathan Haskel echoed his colleagues’ comments from last week, arguing that markets were expecting interest rate cuts too soon.
This buoyed the Pound against the Euro throughout the week, while the single currency faced further headwinds.
Germany’s consumer price index cooled more than expected, fuelling speculation that the ECB would soon start thinking about cutting rates. The Eurozone CPI the following day also missed forecasts, with headline inflation falling from 2.9% to 2.4% in November, rather than the expected 2.7%.
With weak Eurozone growth and inflation nearing the ECB’s 2% target, markets grew increasingly convinced that the central bank would adopt a looser approach to monetary policy sooner than expected. This saw EUR slide to its lowest level against GBP in almost three months.
On Friday, the UK’s final manufacturing PMI printed higher than preliminary results. This helped Sterling end the week strongly against the bruised Euro.
Eurozone recession fears to weigh on EUR?
Looking ahead to next week, high-impact UK economic data remains in short supply.
The only GBP release of note is the final services PMI on Tuesday. The preliminary results boosted Sterling last week by showing an unexpected return to growth in UK service sector activity.
If the finalised score confirms this expansion – or beats forecasts, as the final manufacturing PMI did – then the Pound could strengthen.
Meanwhile, weak German data could dent the Euro. Economists expect German factory orders to have stalled in October and industrial production to have shrunk. This could add to growing worries about a winter recession in the Eurozone’s largest economy.
The latest estimate for Eurozone GDP growth in the third quarter could also impact EUR, particularly if it deviates from previous readings. Confirmation that the bloc’s economy contracted in the three months from July to September could dent the common currency.
If you’ve got a GBP/EUR currency transfer to arrange, the team at TorFX are on hand to help. Get started now to access bank-beating exchange rates and fast, free transfers.
