GBP/EUR exchange rate week review: pound hits fresh multi-month high against euro
The pound euro (GBP/EUR) exchange rate climbed to a multi-month high after political uncertainty in the EU dented the single currency.
(10/06/2024 to 14/06/2024)
Monday
The pound euro (GBP/EUR) exchange rate broke through 1.18 over the weekend against a backdrop of political and economic events in Europe that created headwinds for the single currency.
The European Central Bank’s (ECB) interest rate cut earlier in the week was compounded by French President Emmanuel Macron’s surprise announcement of a snap election in France – stoking political uncertainty that weighed heavily on the euro.
Tuesday
The pound hit a 22-month high around 1.19 against the euro following a sharp rise the previous day, shrugging off lacklustre UK employment data to get there.
The unemployment rate unexpectedly rose to its highest level for two and a half years, official figures from the Office for National Statistics (ONS) showed.
Despite the rise, wage growth remained robust, with earnings continuing to rise faster than prices, which could further delay a cut in UK interest rates – a hawkish outlook that supported the pound.
Hawkish comments from ECB chief economist Philip Lane, who said the central bank is not committing to any further policy easing, were eclipsed by the shock announcement of a French election the previous day, undermining the euro.
Wednesday
The pound euro exchange rate held firm despite data showing the UK economy flatlined in April, before retreating. According to the ONS, there was zero growth compared to the 0.4% figure recorded during March.
The pair began to falter as markets digested the latest US inflation print, which showed headline inflation unexpectedly eased in May.
The euro was initially muted amid German inflation data showing sticky inflation in the Eurozone’s largest economy.
However, as investors ramped up bets on a September rate cut from the US Federal Reserve, an under-pressure dollar supported the euro, due to the currency pairing’s negative trading correlation.
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Thursday
The pound ticked higher versus the euro following an unexpected contraction in the Eurozone’s industrial activity.
Seasonally adjusted industrial production fell 0.1% in the bloc, compared to a 0.5% improvement in March. Economists had forecast a marginal 0.2% uplift.
With economic data releases thin on the ground, diminishing BoE interest rate cut expectations gave the pound a further lift. Financial markets are currently pricing in just one interest rate cut from the central bank this year.
Friday
The pound euro rate touched a fresh 22-month high a whisker below 1.19 amid political uncertainty in the EU.
A lack of market-moving data left the euro exposed to political headwinds. These were generated by the European elections earlier in the week that resulted in gains for far-right Eurosceptic parties, and the shock decision to call for a snap election in France.
If French President Macron’s gamble doesn’t pay off and he fails to fend off the National Rally party, investors could take flight from the euro
Deferred BoE interest rate cut bets continued to keep the pound afloat in the absence of any UK macroeconomic data.
The pound euro exchange rate ended the week at 1.182.
Looking ahead
The UK’s latest CPI hits the headlines on Wednesday. The print is forecast to report that UK inflation continued easing last month, potentially dropping below the BoE’s 2% target. This could create headwinds for the pound if it rekindles rate cut expectations.
The BoE is expected to hold interest rates at 5.25% when its Monetary Policy Committee meets on Thursday. According to a poll of economists, the central bank will wait until August to start cutting interest rates.
On Friday, Eurozone PMIs are published. If, as expected, they signal positive second-quarter growth for the bloc’s economy, the euro could be buoyed.