The Pound Euro exchange rate traded in a wide range this week as both the Bank of England (BoE) and European Central Bank (ECB) delivered their final interest rate decisions of 2023.
Pound bolstered by hawkish BoE
The Pound Euro exchange rate briefly struck a three-month high at the start of this week, before almost immediately shedding these gains.
This slump in GBP/EUR began on Tuesday with the publication of a mixed UK jobs report. While unemployment unexpectedly held steady at 4.2%, wage growth cooled more than forecast. Meanwhile a larger-than-expected improvement in German economic sentiment helped the Euro take advantage of the pullback in Sterling.
The GBP selloff was then reinforced in mid-week trade with the publication of the UK’s latest GDP figures. A surprise contraction in growth in October stoked recession fears and weakened expectations ahead of the BoE’s interest rate decision.
The second half of the week saw the Pound claw back some of its losses, after the BoE’s interest rate decision. While the BoE left rates on hold as expected, it made a concerted effort to pushback against rate cut speculation.
However, the upside in GBP/EUR remained limited as the Euro was simultaneously bolstered by ECB President Christine Lagarde as she stated that the bank did not discuss rate cuts at this month’s policy meeting.
The end of the week then saw the Euro undermined by weaker-than-expected Eurozone PMI data. While a stronger-than-expected expansion in the services PMI strengthened Sterling.
Cooling UK inflation to drag on Sterling?
Looking ahead to the last full week of trade in 2023, the main catalyst of movement in the Pound Euro exchange rate is likely to be the publication of the UK’s consumer price index.
The CPI figures are expected to report UK inflation continued to deceleration through November. Despite the BoE’s hawkish forward guidance, this could still stoke rate cut expectations and weaken Sterling sentiment on Wednesday.
Also potentially influencing GBP exchange rates will be the release of the UK’s latest retail sales figures. Could a rebound in sales growth last month help the Pound close the week on a positive note?
Meanwhile the Eurozone’s own CPI figures are expected to confirm a sharp cooling of inflation in the bloc in November, which could weigh on the Euro in the absence of any other notable EUR data.
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