The Pound Euro exchange rate was infused with some notable volatility this week as the European Central Bank (ECB) delivered its latest interest rate decision.
Euro rocked by ECB rate decision
The Pound Euro exchange rate opened this week on firm footing. Sterling was supported by reports which suggested that the tax cuts in Chancellor Jeremy Hunt’s Spring Budget would be ‘prudent and responsible’.
At the same time, while EUR investors welcomed an upwards revision to the Eurozone’s latest services PMI, the Euro struggled to advance as a reluctance for EUR investors to alter their positions in the currency ahead of the ECB’s interest rate decision.
The GBP/EUR exchange rate then ran stumbled in the middle of the week, as Hunt unveiled his budget.
GBP investors were largely unfazed by the Chancellor’s fiscal plans, but his suggestion that UK inflation will fall below 2% in the coming months stoked Bank of England (BoE) interest rate cut speculation and dragged on Sterling.
Next it was the Euro’s turn to face some headwinds as the ECB concluded its March policy meeting. While no policy changed were announced, GBP/EUR soared to a three-month high as the ECB slashed its inflation forecasts.
However, the single currency immediately recovered, following comments from ECB President Christine Lagarde, in which she appeared to rule out a rate cut in April.
GBP/EUR then began to creep higher at the end of the session as ECB policymakers spoke on the possibility of a Spring rate cut.
UK jobs report to strength the Pound?
Turning to next week, the publication of the UK’s latest jobs report is likely to act as a key catalyst of movement in the Pound Euro exchange rate.
A particular focus is likely to be placed on January’s wage growth figures, as another robust reading could dampen BoE interest rate cut expectations. Especially if unemployment holds at a one-year low.
Also set to influence Sterling sentiment will be the release of the UK’s latest GDP figures. These may also prove supportive of GBP/EUR as a forecast rebound in growth in January may underpin hopes that the UK has already recovered from its recession.
Meanwhile, the only EUR data of note next week will be the latest Eurozone industrial production figures, where an expected contraction in factory output may place some modest pressure on the Euro in mid-week trade.
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