GBP/EUR exchange rate week review: Eurozone inflation data pulls pound to 10-day low against euro
Stubborn services inflation and underlying inflation in the Eurozone give the euro a shot in the arm.
(01/04/2024 to 05/04/2024)
Monday
The bank holiday meant the pound to euro (GBP/EUR) exchange rate traded without a clear direction in the 1.16 range amid empty data dockets in the UK and Eurozone.
Tuesday
Cooling German inflation and a better-than-forecast UK manufacturing PMI injected some strength into the pound, which firmed just below 1.17.
German consumer prices eased again in March – a further sign that the battle against inflation is being won in the bloc. This added weight to speculation that the European Central Bank (ECB) will trigger its interest rate-cutting cycle in June, which dented the pound.
An upward revision to the latest UK purchasing managers index (PMI), which marked the first increase in factory production since August 2022, saw the manufacturing sector climb into expansion territory following a lengthy period of negative growth.
Wednesday
The euro shrugged off softer-than-forecast Eurozone inflation data that cooled for a third straight month after sticky services prices led investors to trim interest rate cut bets.
Headline inflation in the bloc unexpectedly cooled from 2.6% to 2.4%, missing forecasts to remain unchanged, while core inflation eased more than expected from 3.1% to 2.9%.
Services inflation in the bloc remained relatively high at an unchanged 4% year-on-year in March, and underlying inflation has risen sharply since the start of the year.
The finer details of the report dragged the pound, which was left exposed by a data lull, to a 10-day low in the 1.16 mid-range.
Thursday
The GBP/EUR exchange rate traded in a narrow range following the final services PMI prints from the UK and the Eurozone.
The pound was capped by mixed PMI data from the UK. While the reading remained firmly above the 50-point threshold that indicates growth in the services sector, at 53.1 it was down from February’s print of 53.8, and slightly below forecasts of a more modest fall to 53.4.
The picture was better-than-expected in the Eurozone, where the services PMI for March printed above forecasts at 51.5, up from February’s 50.2 reading.
Friday
The euro was already under pressure ahead of the Eurozone’s influential retail data after the ECB’s latest meeting minutes showed no significant deviation from its recent hawkish commentary. This reinforced investor expectations of a June interest rate cut in the bloc.
The single currency was undermined by weaker-than-expected retail sales data when it hit the headlines, which printed at -0.5% for February, below forecasts for a -0.4% reading and dropped sharply from January’s downwardly revised 0% stagnation.
A data dearth in the UK left the pound at the mercy of mounting expectations of a June interest rate cut from the Bank of England (BoE), with markets pricing in a total of four this year.
The pound to euro exchange rate finished the week in the 1.16 mid-range.
Looking ahead
The ECB’s latest interest rate decision and its accompanying press conference will be in the spotlight on Thursday. The central bank is widely expected to hold borrowing costs at 4.5%.
If the ECB uses the accompanying forward guidance to signal that it will start unwinding rates in June, the euro may slump.
A lack of UK data will remain a key theme for the pound next week, potentially leaving it without a clear trajectory.
The only release of note lands on Friday in the shape of the UK’s latest GDP print for February. If the data meets forecasts for a contraction of 0.3%, the pound may be dealt a blow by renewed concern over the health of the UK economy.