GBP/EUR exchange rate week review: pound hits three-week high against euro

(04/03/2024 to 08/03/2024)

Monday

The GBP/EUR exchange rate maintained its sideways movement within the 1.16 range at the start of the week, lacking impetus amid an empty economic data docket in the Eurozone and the UK.

Despite the much-anticipated Spring Budget appearing on the horizon, the pound was little moved by speculation about the contents of Jeremy Hunt’s fiscal statement.

The pound’s stability was reinforced by reduced investor bets on a Bank of England (BoE) interest rate cut. With the UK experiencing the highest inflation among G7 economies, the central bank lacks the platform to loosen monetary policy before its contemporaries.

Tuesday

The pound to euro exchange rate continued to tread water on Tuesday as attention turned to the Spring Budget the following day – with preelection tax cuts widely expected.

Finalised UK services PMIs provided the pound with some prebudget focus, helping it to tick above 1.17 against the euro. Despite missing expectations, the powerhouse services sector continued to expand in February, providing hope that the domestic economy will climb out of its recession.

The euro was also walking in treacle as investors geared up up for the European Central Bank’s (ECB) interest rate announcement on Thursday, which wasn’t expected to provide a shock.

Wednesday

The pound remained tepid on Wednesday as traders digested the government's latest fiscal plans – possibly the last budget before an election that’s expected later in the year.

Chancellor of the Exchequer Jeremy Hunt didn’t spring any surprises in his statement, announcing a two-percentage point cut to National Insurance Contributions, while freezing fuel and alcohol duty, as rumoured before he took to the stand.

In the absence of any fiscal fireballs, the pound oscillated around 1.17.

Thursday

The pound struck a three-week high against the euro on Thursday at around 1.172, following the ECB’s latest interest rate decision. While the central bank kept rates on hold at 4.5% as expected, and remained hushed around rate cuts, it revised its inflation forecasts lower – using its accompanying statement to outline that:

“In particular, ECB’s interest rate decisions will be based on its assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation and strength of monetary policy transmission.”

 

Could this be a signal that the ECB will begin discussing looser policy before long?

Friday

The GBP/EUR exchange rate maintained it’s upward momentum of Friday, touching a fresh three-week high in the 1.17 mid-range amid an increasing appetite for risk that deterred investors from the euro.

Risk sentiment overshadowed upbeat economic figures reporting growth in German industry, with industrial production rising more than expected.

The ongoing UK data lull meant it wasn’t plain sailing for the pound as analysts reaction to the Spring Budget stirred up potential headwinds. While some cited falling inflation and growing wages as a sign of economic optimism, others expressed concerns that the Chancellor’s growth-inducing measures won’t provide the economic boost required following a prolonged period of stagnation.

Looking ahead

Investors will be keeping a close eye on economic numbers that land on Tuesday. February’s German inflation rate is expected to warm up, which may push back ECB rate cut bets, lending the single currency some support. UK unemployment is forecast to hold steady at 3.8%, pointing to a robust UK labour ma