GBP/EUR exchange rate midweek update: investors brace for expected ECB interest rate cut
The pound euro (GBP/EUR) exchange rate was largely flat ahead of the ECB's interest rate decision amid news of falling UK unemployment and stagnating economic growth.
(09/09/2024 to 11/09/2024)
Monday
The pound euro (GBP/EUR) exchange rate was trapped in the 1.18 mid-range amid an absence of notable data.
The latest jobs report from KPMG and the UK’s Recruitment and Employment Confederation (REC) confirmed labour market conditions softened in August as permanent job placements declined sharply – detracting investors from placing aggressive bets on the UK currency.
The report showed permanent staff placements declined for the 23rd straight month in August, marking the sharpest fall since March, bolstering Bank of England (BoE) interest rate cut bets,
The single currency struggled to garner investor attention as market participants brace for the European Central Bank’s (ECB) interest rate decision on Thursday.
Tuesday
The pound crept higher against the euro to around 1.186 following the publication of mixed economic data.
The rate of UK unemployment dropped to 4.1% for the three months to the end of July, retreating from a previous reading of 4.2%, supporting the pound.
The latest UK average earnings (excluding bonuses) declined in the same period, falling from 5.4% to 5.1%, but less than the expected 4.9% print. Signs of slowing wage growth didn’t alter economists’ expectations for the BoE to leave its current interest rate unchanged following its policy meeting next week – a move that could help the pound to firm.
The euro was undermined by Germany’s finalised consumer price index, which showed inflation in the bloc’s largest economy cooled from 2.3% to 1.9% in August – below the ECB’s 2% target. Confirmation of easing price pressures led investors to ramp up ECB interest rate cut bets ahead of the central bank’s decision on Thursday.
Wednesday
The pound euro rate edged lower to around 1.184 after the UK economy unexpectedly flatlined for second month in row.
The anticipated post-election economic bounce back failed to materialise as activity stagnated in July, with the UK’s GDP reading printing below market expectations, remaining at 0% rather than rising to 0.2% as forecast. However, the economic data failed to add to BoE interest rate cut bets, cushioning the pound’s losses.
Meanwhile, the single currency was subdued ahead of the ECB’s imminent interest rate decision on Thursday.
Looking ahead
The ECB is widely expected to enact a 25 basis-point cut following its September policy meeting on Thursday – a move that could see the euro weaken. A surprise rate hold could help the single currency to firm.