GBP/EUR exchange rate week review: pound and euro muted by rate cut expectations
Pound to euro exchange rate trades without a clear direction amid dovish rate speculation from the UK and the bloc.
(25/03/2024 to 29/03/2024)
Monday
The pound to euro (GBP/EUR) exchange rate treaded water in the 1.16 mid-range as positive UK retail data was offset by dovish comments from a Bank of England (BoE) rate-setter.
Figures from the Confederation of British Industry showed that retail sales are starting to stabilise, with the March print coming in well above forecasts, ending a 10-month run of diminishing sales.
Speaking at an event at the Royal Economic Society's annual conference, BoE policymaker Catherine Mann said her stance on the right level of interest rates had been “finely balanced” before her vote to keep them on hold in March.
The euro also lacked a clear direction amid a data lull and ongoing speculation about a June rate cut by the European Central Bank (ECB).
Tuesday
The pound remained muted against the euro as the upside potential of an improving GFK consumer confidence index from Germany was capped by the powerhouse economy’s ongoing slumber – it was the worst-performing major economy in the world last year.
The pound was also rudderless amid a lack of domestic data.
Wednesday
The GBP/EUR pair continued to traverse the 1.16 mid-range on Wednesday, as the pound and euro both battled headwinds.
Dovish comments from ECB policymaker Piero Cipollone, who pointed to the “timely convergence” of inflation to the central bank’s 2% target, stoked speculation that it will fire the starting gun on its unwinding cycle in June.
A data-light session in the UK left the pound exposed to mounting BoE interest rate cut speculations. For example, with inflation forecast to cool significantly, and the UK economy in recession, Big Four accounting firm KMPG are pricing in four rate cuts this year – one more than the market consensus of three.
Thursday
The pound to euro rate was muted by confirmation that the UK entered a technical recession at the end of last year. The economy shrank by 0.3% in the final three months of 2023, data from the Office for National Statistics (ONS) revealed, while growth in the previous quarter was also negative.
The euro experienced choppy trade amid mixed data releases from the beleaguered German economy. An unexpected slump in retail sales was offset by steady German unemployment.
Friday
A Good Friday data lull in the UK dented the pound slightly. This was balanced out by consumer price index (CPI) readings from the bloc that boosted hopes of an ECB rate cut – putting a lid on the euro’s upside. French inflation cooled more than forecast to its lowest level since July 2021, while price growth also undershot predictions in Italy.
Looking ahead
A data-light week in the UK economy means investors will focus attention on the German CPI for March and the EU’s preliminary CPI for March on Tuesday and Wednesday respectively. The EU figure is forecast to hold steady at 2.6%, which would leave an expected June rate cut from the ECB on the table.