The Pound Euro exchange rate trended broadly lower this week as the latest UK data stoked Bank of England (BoE) interest rate cut speculation.
Pound stumbles on lacklustre UK jobs report
The Pound Euro exchange rate got off to a poor start this week. Sterling ran afoul of some profit taking following the previous week’s surge, while the appeal of the Euro was bolstered by a risk-off market mood.
GBP/EUR then tumbled on Tuesday with the publication of the UK’s latest jobs report. January’s surprise uptick in unemployment as well as an unexpected cooling of wage growth sparked speculation the BoE could begin cutting interest rates in June.
The Pound continued to face headwinds in the middle of the week. While the UK’s latest GDP figures reported growth rebounded in January, analysts warned the data masked some underlying weakness within the UK economy.
The second half of the week then saw GBP/EUR rebound from its worst levels. This followed a slump in the Euro after European Central Bank (ECB) policymaker Yannis Stournaras, argued that the bank should cut interest rates ‘soon’.
BoE rate decision in the spotlight
Looking ahead to next week, the main catalyst of movement in the Pound Euro exchange rate will likely be the BoE’s latest interest rate decision.
The BoE is widely expected to leave rates on hold this month, leaving the focus on the bank’s policy outlook.
GBP investors will be seeking to gauge the likelihood of the BoE pursuing a June interest rate cut. If the bank pushes back on this narrative, then the Pound may soar. However, if the BoE concedes that a rate hike at the start of summer is possible, then Sterling is likely to nosedive.
The run up to the BoE’s rate decision will see the publication of the UK consumer price index. Expect to see GBP exchange rates stumble if inflation prints below expectations again in February.
For EUR investors the spotlight next week will be on the Eurozone’s latest PMIs. March’s figures are expected to show the bloc’s private sector finally returned to growth after a nine-month contraction, potentially bolstering the Euro.
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