The pound euro exchange rate was trapped in a fairly narrow range this week, amid some mixed Eurozone data and limited Sterling impetus.  

Euro wavers amid mixed data 

The pound euro exchange rate got off to a positive start this week. Sterling sentiment being buoyed by a broadly upbeat market mood, while the euro was dented amid confirmation the Eurozone’s manufacturing sector has contracted for two consecutive years. 

Trade in GBP/EUR then grew more erratic as the week continued. The pound faced resistance as market sentiment soured, while concerns over the state of Germany’s economy infused volatility into the single currency. 

This continued with the publication of some mixed Eurozone data in the middle of the week. While EUR investors welcomed a surprise uptick in the bloc’s producer price index in July, they were simultaneously dismayed by a downward revision to Eurozone service sector growth last month. 

At the same time, while the UK’s services PMI was revised higher, it offered limited support to Sterling. 

The euro then received a leg up in the second half of the week as surprise expansion in German factory orders, coupled with a rebound in Eurozone retail sales underpinned the single currency. 

However, GBP/EUR remained confined to a narrow range as the upside in the euro was offset by Sterling strength. 

Dovish forward guidance from the ECB to drag on the euro? 

Turning to next week, the European Central Bank’s (ECB) latest interest rate decision will likely act as the primary catalyst of movement for the GBP/EUR exchange rate. 

The ECB is widely expected to deliver another 25bps rate cut when it concludes its September policy meeting on Thursday. 

While the rate cut has be largely priced into EUR exchange rates, the bank’s forward guidance could trigger notable movement in the euro. 

If ECB President Christine Lagarde signals that more rate cuts will be needed before the end of 2024, the euro is likely to come under pressure. 

In the meantime, GBP investors will be focused on the publication of the UK’s latest jobs report on Tuesday. 

While unemployment is forecast to remain unchanged in July, an expected slowdown in wage growth may act as a headwind for the pound if it is seen as placing more pressure on the Bank of England (BoE) to cut interest rates. 

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