The pound euro exchange rate briefly struck a new 23-month high this week, amid a trimming of Bank of England (BoE) interest rate cut bets. 

Pound fluctuates on uneven UK data 

The pound euro exchange rate got off to a slow start this week, with the pairing trading sideways through the first half of the session. 

GBP/EUR remained rangebound despite Germany’s latest ZEW economic sentiment index reporting that morale in the Eurozone’s largest economy deteriorated for the first time in a year this month. 

Sterling then soared on Wednesday, following the publication of the UK’s consumer price index. June’s CPI figures reported inflation held at 2%, while services inflation unexpectedly rose. 

A subsequent repricing of bets for an August interest rate cut from the BoE helped catapult GBP/EUR to a 23-month high. 

However, the pound was unable to sustain these gains for long as BoE rate cut bets were partially revived on Thursday after the UK’s latest jobs data reported a cooling of age growth in May. 

At the same time, the euro was subdued in the wake of the European Central Bank’s (ECB) latest interest rate decision. While the bank kept rates on hold this month, its forward guidance left the door open to a potential cut in September. 

Closing out the week was the release of the UK’s latest retail sales figures, with the pound coming under additional pressure as sales growth plummeted in June. 

UK and Eurozone PMIs in the spotlight 

Turning to next week, the publication of the latest PMIs from both the UK and Eurozone will likely act as the main catalyst of movement in the GBP/EUR exchange rate. 

GBP investors will be hoping to see activity in the UK’s private sector begin to pick back up again in July, following two consecutive months of slowing growth. However, if this month’s preliminary figures indicate the UK economy got off to a slow start in the third quarter the pound is likely to falter 

At the same time, a continued decline in the Eurozone’s manufacturing sector could act as a headwind for the euro next week, although this could be offset if activity in the services sector improved, 

Also potentially influencing EUR exchange rates later in the week will be Germany’s latest IFO business climate index. Will another improvement in morale lift the euro on Thursday? 

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