GBP/EUR exchange rate midweek update: pound recovers from two-week low against euro
The pound rebounded from a 14-day low as markets speculated whether a dovish pivot could be in the offing from the ECB.
(08/04/2024 to 10/04/2024)
The pound euro (GBP/EUR) exchange rate meandered through the 1.16 mid-range on Monday amid a lack of UK data.
Single currency sentiment was sapped by mixed German trade data and industrial production numbers, but a bare UK economic calendar left the pound unable to capitalise.
The overall trade surplus in the bloc’s powerhouse economy fell short of expectations, increasing the risk that it slipped into a recession at the start of 2024. Furthermore, Germany’s exports contracted by more than forecast.
However, the euro’s downside was cushioned by Germany’s accompanying industrial production data for February. The figures signalled a second consecutive month of growth, accelerating past expectations of a 0.3% increase and printing at 2.1%.
Having dropped to a two-week low overnight the pound rallied, climbing back into the 1.16 mid-range on Tuesday, helped by better-than-forecast retail data from the British Retail Consortium (BRC). The March sales monitor increased to 3.2%, beating expectations of 1.8% and jumping from February’s one-year low of 1%.
The euro was subdued ahead of the European Central Bank’s (ECB) monetary policy statement later in the week, as investors speculated about a potential dovish pivot from the central bank.
The pound euro rate began climbing to within touching distance of 1.17 on Wednesday ahead of central bank commentary that’s expected to signpost the start of its easing cycle in June – an outlook that sapped sentiment towards the single currency.
Trade in the pound remained muted amid a data lull, but this didn’t hold it back against the interest-rate-sensitive euro.
Looking ahead
The ECB announces its March interest rate decision on Thursday and is expected to keep borrowing costs at a 22-year high of 4.5% for the fourth straight meeting.
However, accompanying commentary from central bank policymakers is poised to show waning economic growth and cooling inflation for the coming year. This could ramp up pressure on the ECB to unwind interest rates this summer, which might deal the euro another blow.
The latest GDP print from the UK economy hits the headlines on Friday. Economists are forecasting the UK economy to have grown by 0.1% on a monthly basis in February. While this would represent a deceleration from the previous month’s 0.2% reading, it would mark the second consecutive month of growth.
While the potential slowdown in economic activity may cap the pound’s potential gains, it would still represent progress as the UK attempts to climb out of a technical recession.