GBP/EUR exchange rate week review: euro little moved by expected ECB rate cut
The pound euro (GBP/EUR) exchange rate absorbed the European Central Bank's latest interest rate cut, with the Bank of England's September policy decision on the horizon.
(09/09/2024 to 13/09/2024)
Monday
The pound euro (GBP/EUR) exchange rate was trapped in a narrow range around 1.184.
The only data of note from the UK economy was the latest jobs report from KPMG and the REC, which confirmed labour market conditions softened in August amid a decline in permanent job placements – the sharpest fall since March, which reinforced Bank of England (BoE) interest rate cut bets.
Tuesday
The pound ticked up to around 1.186 versus the euro following impactful data from both sides.
The rate of UK unemployment edged lower from 4.2% to 4.1% for the three months to the end of July, boosting the pound. UK average earnings (excluding bonuses) declined less than expected in the same period.
Germany’s finalised consumer price index showed inflation in the bloc’s largest economy cooled below the ECB’s 2% target to 1.9%. This prompted investors to increase ECB interest rate cut bets ahead of the central bank’s policy decision on Thursday, undermining the euro.
Wednesday
The pound euro rate arrested its marginal gains, softening to around 1.184 after the UK economy unexpectedly stalled for a second consecutive month.
The UK GDP monthly estimate showed no growth in July, coming in under market expectations of 0.2%. However, the pound’s downside was limited by the data’s failure to add to BoE interest rate cut bets.
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Thursday
The euro absorbed the ECB’s unanimous decision to cut interest rates by a quarter percentage point to 3.5% in response to cooling inflation and signs the bloc’s economy risks stagnating. However, the central bank indicated that it was in no rush to deliver the next cut, a hawkish stance analyst that buoyed the single currency.
The pound was flat amid a lack of fresh UK data, leaving it exposed to lingering headwinds from the previous day’s weaker-than-forecast GDP reading.
Friday
The pound drifted higher against the euro to around 1.186 following the ECB’s widely expected rate cut the previous days and subsequent hawkish comments from the central bank’s President Christine Lagarde, who said: “We will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. We are not pre-committing to a particular rate path.”
The pound was indifferent amid fresh concerns that the UK’s public debt could rise to 270% of GDP by the second half of the century.
Looking ahead
Economists expect the BoE to keep its main interest rate at 5% on Thursday – a move that could support the pound – but reduce it in November even though inflation is expected to stay above the central bank's 2% target.
The primary catalyst of euro movement will likely be Germany’s latest ZEW economic sentiment index, scheduled for release on Tuesday. September’s reading is expected to remain near seven-month lows and dip further, which could hobble the single currency.