GBP/EUR exchange rate midweek update: pound hits two-week low against euro
Better-than-expected Eurozone data and speculation about upcoming Bank of England forward rate guidance combine to dent the pound.
(06/05/2024 to 08/05/2024)
Monday
The May Day public holiday in the UK meant the pound euro (GBP/EUR) exchange rate traded sideways through the 1.16 mid-range following the release of several prints from the bloc. This included a cooling producer price index and expansion in the services sector, with the PMI hitting an 11-month high.
Tuesday
The pound sunk to a 13-day low around 1.162 against the euro following mixed Eurozone releases.
German factory orders unexpectedly fell by 0.4% in March, rather than increasing by 0.5% as forecast by economists. The decline initially applied pressure to the euro, before a rise in German exports, which were up by 0.9% in the export-heavy economy, cushioned the single currency.
Furthermore, better-than-forecast retail sales across the bloc kept the euro buoyant. Retail sales rose by 0.8% in March, exceeding forecasts of 0.6% and notably rising from February’s 0.3% contraction.
A short supply of data from the UK economy left the pound exposed to shifting interest rate cut speculations ahead of the Bank of England’s (BoE) latest policy decision on Thursday.
Wednesday
The pound euro rate extended its losses, hitting a two-week low a fraction above 1.16 following the release of better-than-expected economic data from within the Eurozone.
The single currency was buoyed by German industrial production figures, which showed a decline in March, but less than expected thanks to construction.
Industrial production in the Eurozone’s largest economy dropped by 0.4% compared to February, marking the first contraction in the sector within a three-month period. However, this represented a smaller decline than the 0.6% drop forecast by economists.
The pound was fettered by an absence of influential data, which left investors subdued ahead of the BoE’s interest rate decision on Thursday.
The central bank is widely expected to leave interest rates untouched at 5.25% for a sixth consecutive meeting.
Looking ahead
Thursday’s BoE interest rate decision brings the BoE’s forward guidance for monetary policy into sharp focus for markets, as participants look for clues about when the central bank will implement its first rate cut this year.
If this accompanying commentary is interpreted by investors as being dovish, the pound could weaken. However, should rate-setters strike a hawkish tone, pound sentiment could be boosted.