GBP/EUR exchange rate week review: pound touches four-week low versus euro
The pound euro (GBP/EUR) exchange rate was undermined by Labour's first budget since the party came to power in July and hotter-than-forecast Eurozone inflation data.
(28/10/2024 to 01/11/2024)
Monday
The pound euro (GBP/EUR) exchange rate was choppy as investors braced for the new Labour government’s first budget in 15 years on Wednesday. The pair wavered between the 1.19 and 1.20 levels amid expectations for tax rises and spending cuts, which were tempered by recent speculation of increased investment.
Tuesday
The pair was propelled into the 1.20 mid-range by a diverging monetary policy outlook in the UK and Eurozone, with rates expected to fall at a slower pace in the UK than in the bloc.
Persistent German recession concerns meant the euro was unmoved by upbeat consumer confidence data from the bloc’s largest economy, despite a subsequent reduction in European Central Bank (ECB) rate-cut expectations.
Wednesday
The pound nosedived below the 1.20 benchmark versus the euro following the Autumn Budget. UK Chancellor Rachel Reeves delivered a slew of expected tax rises totalling £40bn. However, the UK currency’s downside was capped by the announcement of a big increase in government borrowing to finance spending projects – a move that could spark inflation and stifle further Bank of England (BoE) interest rate cuts.
Budgetary concerns were compounded by euro strength following the release of warmer-than-expected German inflation data and upbeat GDP readings from the Eurozone and Germany, with the latter dodging recession.
Contact a currency specialist to discover how they can help you take control of exchange rates.
Thursday
The pound continued its spiral, falling into the 1.18 mid-range amid jitters over the huge tax and spending plans announced in the budget – touching a four-week low.
Meanwhile, the euro was lifted slightly by the latest CPI from the bloc which showed both headline and core inflation printed above market forecasts, prompting investors to dial back ECB interest rate cut bets for December.
Headline inflation rose to 2% in October, meeting the ECB’s target and printing slightly above market analysts’ expectations of 1.9%. Core inflation, which excludes volatile food and energy prices, held steady at 2.7%, coming in 0.1 percentage points higher than forecast.
Friday
The pound was undermined by the UK’s manufacturing PMI print for October which reported the sector dropped into contraction territory (a reading below 50), falling from 51.5 to 49.9, comfortably lower than expectations for a more modest 50.3 reading. This marked the first decline in factory activity since April, which was attributed to the budget.
Looking ahead
The Eurozone’s finalised manufacturing PMI for October hits the headlines on Monday. Despite an expected uptick in the index, the sector is still forecast to remain firmly in contraction territory, which is likely to leave the euro on the defensive.
The BoE is expected to action another interest rate cut on Thursday amid cooling UK inflation – a move that’s likely to dent the pound.