GBP/EUR exchange rate midweek update: pound feels pressure of BoE rate cut speculation
The pound euro (GBP/EUR) exchange rate was hampered by Bank of England interest rate cut speculation and a shock rise in Eurozone inflation.
(29/07/2024 to 31/07/2024)
Monday
The pound euro (GBP/EUR) exchange rate found itself under pressure ahead of Chancellor Rachel Reeves update on the state of the UK’s public finances. Reports of a £20bn gap caused it to drift lower to 1.182 amid concerns over potential new tax to plug the hole and the overall health of the UK’s finances.
The euro struggled to garner investor attention due to a data-light calendar. Its movement was also restricted by investor anticipation of the Eurozone’s preliminary GDP data for the second quarter of the year.
Tuesday
The pound managed to pare its losses after Rachel Reeves ruled out any new tax plans ahead of the Autumn budget, helping the UK currency to rebound to around 1.188.
The euro was subdued despite upbeat GDP figures that showed the Eurozone’s economy grew by more than expected in the second quarter. The economy expanded by 0.3%, despite an economic contraction in Germany beating expectations for a 0.2% increase on a quarterly basis.
The single currency was also stymied by a positive market mood that led investors to opt for riskier assets, leaving the safe-haven single currency out of favour.
Wednesday
The pound euro exchange rate fell to around 1.184 following a surprise rise in consumer prices in the Eurozone. The annual inflation rate unexpectedly ticked up in July due to rising energy costs, leaving it uncertain if the European Central Bank (ECB) will cut interest rates in September.
Consumer prices in the bloc increased 2.6% in July, faster than June's 2.5% rate, and defying economists’ predictions that the inflation rate would ease to 2.4%.
Meanwhile, the pound was hampered by rising Bank of England (BoE) interest rate cut speculation ahead of the bank’s impending policy decision.
Looking ahead
Economists have been divided about whether the BoE would fire the starting gun on its rate-cutting cycle on Thursday after holding the Bank Rate at 5.25% since last August to cool inflation, which has come back under control.