The Pound Euro exchange rate traded erratically this week in response to mixed data and central bank interest rate speculation. 

Pound knocked by BoE rate cut speculation 

The Pound Euro exchange rate initially firmed this week. EUR sentiment stumbled at the start of the session after Germany’s Bundesbank warned the country is likely in a recession amid weak growth in the first quarter of 2024. 

Sterling was unable to consolidate these gains however, with GBP exchange rates being pressured through the first half of the week amid Bank of England (BoE) interest rate speculation. 

Comments from BoE Governor Andrew Bailey and former Chief Economist Andy Haldane stoked expectations the bank may cut rates in May and plunged GBP/EUR to a one-week low on Tuesday. 

After quickly rebounded from its worst levels, the Pound was left to trade sideways in the middle of the week, in the wake of the UK’s latest borrowing figures. While the UK recorded a sharp rise in its budget surplus, analysts suggested it wasn’t enough to allow for tax cuts in next month’s Budget. 

The GBP/EUR exchange rate then firmed in the latter half of the week in the wake of the latest UK and Eurozone PMIs. 

While the February’s preliminary figures reported an end to the Eurozone’s five-month contraction in its services sector, robust growth in the UK services sector ultimately allowed the Pound to prevail. 

Eurozone inflation to drive EUR movement? 

Turning to next week’s data calendar, the highlight looks to be the publication of the of the Eurozone’s latest inflation figures. 

February’s preliminary CPI figures could pull the Euro lower if they report inflationary pressures in the Eurozone eased again this month, as this would bolster expectations the European Central Bank (ECB) could start cutting interest rates in April. 

In the meantime, EUR exchange rates may be influenced by the release of the Eurozone’s economic sentiment index. Will an improvement in morale this month reflect positively on the single currency? 

Meanwhile, UK data is thin on the ground through most of next week, which may leave movement in the Pound primarily driven by market sentiment. An optimistic mood may help bolster Sterling. 

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