The pound euro exchange rate was met by heavy losses this week, in the wake of the Bank of England’s (BoE) latest interest rate decision.
Pound plummets as BoE turns dovish
The pound euro exchange rate initially ticked higher this week as EUR sentiment was undermined by comments from a European Central Bank (ECB) policymaker, suggesting the bank could start cutting interest rates from June.
However, this upside in GBP/EUR remained limited in scope as investors were reluctant to make any aggressive bets on the pound ahead of the BoE’s latest interest rate decision.
The middle of the week saw both GBP and EUR come under pressure. Sterling was undermined by a weaker-than-expected UK inflation print, while the euro was dented by dovish comments from ECB President Christine Lagarde.
The pound then tumbled after the BoE delivered its latest interest rate decision.
While the BoE’s decision to leave rates on hold was in line with expectations, GBP investors were shocked by a dovish shift within the bank’s Monetary Policy Committee which saw they drop calls for a rate hike.
Coupled with a subsequent interview with BoE Governor Andrew Bailey, in which he claimed that rate cuts are now ‘in play’ at future policy meeting, this saw GBP investors start to price in a June rate cut from the BoE.
At the same time, the euro’s gains at the end of the week were curtailed by an underwhelming Eurozone manufacturing PMI.
Rebound in German retail sales to lift the euro?
Turning to next week, the euro could draw support from the publication of Germany’s latest retail sales data.
Economists forecast that February’s figures will report that sales returned to growth for the first time since October. This may help to ease German recession fears and lift the single currency.
Also of note to EUR investors will be the release of the Eurozone economic sentiment index. Could an improvement in sentiment this month also help to bolster the euro?
Meanwhile, the UK’s latest GDP print will be the only UK data of note next week.
However barring a revision to the final reading for the fourth quarter of 2024, its impact on the Pound is likely to be negligible.
Instead, it’s likely that ongoing BoE rate speculation may act as the main catalyst of movement in the pound tomorrow.
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