GBP/EUR exchange rate week review: pound recovers from 3-month low against euro
Having been pulled to a three-month low by dovish BoE comments, the pound to euro rate was spurred higher by diverging remarks that dulled interest rate cut speculation.
(22/04/2024 to 26/04/2024)
Monday
The pound euro (GBP/EUR) exchange rate dropped to 1.157 – a three-month low – amid a data lull, leaving investors to recall Friday’s dovish comments from Bank of England (BoE) Deputy Governor Dave Ramsden, which undermined the pound.
Ramsden spurred investors to scale back their interest rate cut bets from August to June by predicting that UK inflation will fall back close to the official target in April, for the first time since summer 2021.
A risk-on mood in markets left the safe-haven euro treading water.
Tuesday
The pound edged away from a three-month low against the euro following remarks from BoE Chief Economist Huw Pill, who said that rate cuts remained some way off. His cautious approach to policy was reinforced by his view that there were greater risks from cutting the Bank Rate too quickly, rather than too late.
His hawkish comments followed a closely watched survey of economic activity that showed British businesses recorded their fastest growth in activity in nearly a year in April.
The S&P Global UK Composite Purchasing Managers' Index for the services and manufacturing sectors jumped to an 11-month high. The increase was underpinned by a significant rise in the services index, while the index for the smaller manufacturing sector unexpectedly fell into contractionary territory.
The euro was subdued after the Eurozone’s PMI survey for April indicated that the bloc’s economy is finally departing stagnation and returning to growth. Inflationary pressures remain for the service sector, but this isn’t expected to deter the European Central Bank (ECB) from cutting rates this summer.
Wednesday
The pound was still benefitting from Huw Pill’s contradictory remarks following his colleague Dave Ramsden’s recent dovish tone. With expectations of a summer interest rate cut pushed back to September, the UK currency edged back above the 1.16 benchmark.
A risk-on mood in markets dented appeal for the safe-haven euro. News that Germany’s latest Ifo business climate index ticked higher, showing sentiment towards the bloc’s largest economy reached an eleven-month high, couldn’t offset the single currency’s trend lower.
Thursday
The pound euro (GBP/EUR) exchange rate ticked higher into the 1.16 mid-range as the latest German GfK consumer confidence index reported another deeply negative reading. Despite being better-than-forecast, it sapped sentiment towards the single currency.
Investors in the pound were sanguine following a notable decline in the Confederation of British Industry’s (CBI) latest distributive trades data. The CBI’s monthly retail sales balance sunk to -44 in April, well below market expectations of -2 and down from March’s reading of 2. The print represented the worst April for UK retail sales since 2020, raising fears of renewed economic weakness in the domestic economy.
A growing appetite for risk gave the increasingly risk-sensitive pound a boost against the safer euro.
Friday
The pound euro rate was trading without a clear direction in the 1.16 mid-range amid a dearth of UK data.
Upbeat economic morale supported the UK currency after GfK’s consumer confidence barometer climbed to -19 during April as optimism about personal finances for the coming year remained buoyant.
Interest in the euro was impeded by a data lull at the end of the week. Consequently, investors returned to the latest ECB commentary after central bank rate-setters suggested that markets are currently pricing in too many rate cuts this year – a hawkish view that could lend the single currency marginal support.
Looking ahead
A data-light week in the UK means investor attention will be focused on inflation figures for April from Germany and the wider bloc on Monday and Tuesday respectively.
Markets are looking for further confirmation that CPI is cooling towards the ECB’s 2% target. Inflation is forecast to have risen by 2.3-2.4% on the year before, according to consensus estimates – a nudge higher that could prompt investors to reassess the likelihood of a June rate cut, giving the euro a shot in the arm.