The pound euro exchange rate rallied this week, with the pairing being catapulted to a new 29-month high in the wake of the European Central Bank’s (ECB) latest interest rate decision.
GBP/EUR soars as ECB cuts interest rates
After a slow start to the week, the pound euro exchange rate began to appreciate on Tuesday following the release of the UK’s latest jobs report.
While August’s figures showed that UK wage growth continued to cool, GBP investors welcomed a surprise fall in unemployment. At the same time, the euro stumbled as caution in the lead up to the ECB’s latest rate decision overshadowed a stronger-than-expected recovery in German economic sentiment.
The pound plummeted in mid-week trade with the publication of the UK’s latest consumer price index. A much sharper-than-expected deceleration in inflation last month stoked bets for consecutive interest rate cuts from the Bank of England (BoE) in November and December.
However, the GBP/EUR exchange rate then roared back on Thursday as the ECB delivered its latest rate decision.
In addition to cutting rates by another 25bps, the ECB suggested the disinflationary process is ‘well on track’. Hinting that more cuts may be on the table in the coming months.
Extending the upside in the GBP/EUR exchange rate at the end of the week was the publication of the UK’s latest retail sales figures. While sales growth slowed from 1% to 0.3% in September, it beat forecasts for a 0.3% contraction.
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 growth in the UK’s private sector begin to accelerate again this month. However, October’s preliminary figures may act as a headwind for the pound if they report that activity remained subdued ahead of the upcoming UK budget.
At the same time, after growth in the Eurozone’s private sector contracted last month, EUR investors may be wary of October’s figures. Another weak PMI print could cause the euro to test new multi-month lows against the pound.
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