GBP/EUR exchange rate week review: pound drifts below 1.17 against euro
Investors in the pound digest data showing that UK unemployment unexpectedly rose, wage growth slowed and the economy demonstrated signs of growth.
(11/03/2024 to 15/03/2024)
Monday
The GBP/EUR exchange rate edged lower on Monday amid a dearth of data in the UK and Eurozone economic calendars and a risk-on mood in markets that lent the euro support.
This lack of impetus brought Tuesday’s UK employment report into sharp focus for investors and its potential impact on inflation and subsequent interest rate chatter.
Bank of England (BoE) policymaker Catherine Mann touched on inflationary pressures in a speech on Monday, stating that the economy has “a long way to go” for them to be consistent with the central bank’s 2% target.
Tuesday
The pound to euro exchange rate was pulled just below 1.17 on Tuesday after data showed UK unemployment unexpectedly rose and wage growth slowed in the three months to January, reflecting a broader slowdown in the economy.
Slowing wage growth lends itself to looser policy, with the BoE expected to view the latest print as another reason to begin cutting interest rates this year – a dovish outlook that weighed on the pound.
Rate cut speculation capped any euro gains after data showed that in February German inflation fell to its lowest level since June 2021.
Wednesday
The GBP to EUR exchange rate was stuck in a narrow range on Wednesday. Even signs of improving UK economic growth couldn’t inspire it.
GDP data showed the UK economy returned to modest growth at the start of 2024. The 0.2% print matched forecasts, which limited its impact on the pound despite indicating the UK’s recession will be short-lived.
The euro also failed to gain traction following industrial production data from the Eurozone that tanked to its lowest levels since March 2023, denting the bloc’s economic outlook.
Thursday
Interest rate rhetoric from a European Central Bank (ECB) policymaker helped the pound to edge above 1.17 on Thursday after his words weighed on the euro.
Yannis Stournaras banged the drum for cutting interest rates soon amid concerns that the central bank’s current monetary policy could become too restrictive.
Conversely, the pound was supported by waning BoE rate cut bets following Wednesday’s GDP print that confirmed the UK had returned to growth in January.
Friday
A lack of notable data from the UK meant the GBP/EUR exchange rate could only traverse the lower reaches of the 1.17 range ahead of a speech by ECB Chief Economist Philip Lane on Friday.
Despite indicating that the softening Eurozone labour market could inspire the central bank to begin reeling in interest rates, the pound slipped a fraction below 1.17 as the week concluded in the wake of his dovish comments.
Looking ahead
Barring a huge surprise in February’s inflation print on Wednesday the BoE is expected to hold interest rates steady the following day.
Tuesday brings the latest German ZEW economic sentiment index. Despite probably remaining downbeat, a forecast improvement could cushion the euro as Germany’s economic recovery shifts out of first gear.