The pound euro exchange rate traded in a wide range this week amid heightened concerns over the UK’s looming Autumn Budget.
GBP/EUR fluctuates amid UK budget uncertainty
The pound euro exchange rate got off to a mixed start this week. Sterling sentiment was pressured by speculation that UK Chancellor Rachel Reeves will implement a series of tax hikes in her upcoming budget. While the euro faltered as German PPI sank in September.
GBP exchange rates then faced additional headwinds after surprise increase in UK public sector borrowing in September raised fresh concerns over the Chancellor’s fiscal headroom in her budget.
While these budget concerns continued to drag on the pound in mid-week trade, the euro was able to draw some support from comments by European Central Bank (ECB) President Christine Lagarde.
Lagarde suggested the bank may need to act more cautious in regard to future interest rate cuts amid potential inflation risks.
The GBP/EUR exchange rate then began to rebound on Thursday following the publication of the latest UK and Eurozone PMIs.
While the UK PMIs reported that growth in the private sector was weaker-than-expected in October, this beat the Eurozone figures, which reported the bloc’s private sector contracted for the second consecutive month.
However, the upside in GBP/EUR proved fleeting, as a pullback in the US dollar quickly helped the euro to bounce back.
UK budget to continue to drive volatility in Sterling?
Unsurprisingly, a key catalyst for movement for the pound euro exchange rate next week will be the full unveiling of the UK’s long-awaited Autumn Budget.
Reeves will need to convince markets that her spending and tax plans will help to boost growth in the UK economy, or the pound is likely to weaken.
Meanwhile, the primary focus for EUR investors next week will be the publication of the Eurozone’s latest GDP figures.
The preliminary estimate for the third quarter could place notable pressure on the euro if it reports that growth remained anemic as we entered the second half of 2024.
Also set to influence EUR exchange rates will be the Eurozone’s consumer price index. If inflation continued to cool this month its likely to stoke bets for another ECB rate cut in December and pile more pressure on the single currency.
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