The Pound Euro exchange rate was mostly rangebound this week, with the pairing holding close to a two-month high. 

Euro subdued amid lacklustre data 

The Pound Euro exchange rate got off to a slow start this week. While lacklustre German trade data weighed on the single currency, Sterling was also suppressed by a downbeat market mood. 

GBP/EUR began to creep higher on Tuesday as an upwards revision to the UK’s services PMI in November buoyed Sterling sentiment.  

Meanwhile, the Euro faced some headwinds in mid-week trade, following the publication of Germany’s latest industrial data. A larger-than-expected slump in factory orders and surprise contraction in industrial production in October, raised concerns Germany could be at risk of slipping into a recession. 

At the same time, the Pound was muted following comments from Bank of England (BoE) Governor Andrew Bailey, as he struck a slightly more cautious tone than he has in recent weeks. 

The end of the week then saw GBP/EUR trade without a strong directional bias amid a lack of notable UK and Eurozone data. 

BoE and ECB rate decisions in the spotlight 

Movement in the Pound Euro exchange rate will no doubt be dominated by the latest interest rate decisions by the BoE and European Central Bank (ECB) next week. 

Both central banks are scheduled to deliver their final rate decisions of 2023 on Thursday. While neither the BoE or ECB are expected to alter interest rates this month, there is potential for a marked divergence in the banks’ forward guidance to lead the two currencies in very different directions. 

The ECB is thought to be exploring the possibility of up to three rate cuts in 2024, which could weigh on the Euro if this is communicated through the bank’s policy statement. 

In contrast, a series of hawkish speeches from BoE policymakers in recent weeks suggests the bank may seek to downplay expectations of a rate cut next year. Could this help to propel the pound sharply higher? 

In the meantime, the UK’s latest labour report could inject some volatility into Sterling in the first half of the week as economists forecast unemployment will have ticked higher at the start of the third quarter. 

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