GBP/EUR exchange rate week review: pound retreats from multi-month high versus euro to two-week low
The pound euro (GBP/EUR) exchange rate jumped to a multi-month high amid increased European Central Bank interest rate cut bets before toppling to a two-week low amid dovish remarks from the Bank of England's governor.
(30/09/2024 to 04/10/2024)
Monday
The pound euro (GBP/EUR) exchange rate briefly spiked to a fresh 29-month high around 1.202 amid cooling German inflation.
The German consumer price index reported that inflation in the bloc’s largest economy fell from 1.9% to 1.6% in August – its lowest reading for three and a half years. This increased bets on another interest rate cut from the European Central Bank (ECB) in October.
The UK currency’s move higher represented a rapid change in fortunes after GDP data for the second quarter showed that the UK economy grew less than forecast.
Tuesday
Data showing Eurozone headline inflation cooled more than expected in September left the pound subdued against the euro, holding a fraction above the 1.20 level.
Evidence that overall inflation cooled below the ECB's 2% target last month was offset by core inflation, which printed above target at 2.7%.
The headline reading undermined the euro as pressure on the ECB to cut interest rates again this year intensified.
The pound was also on the defensive after the UK’s finalised PMI for September eased from 52.5 to 51.5, matching market expectations – its lowest reading in more than four years amid fears of tax hikes in the Autumn Budget.
Wednesday
The pound euro rate ticked slightly higher after unemployment in the bloc remained at record lows in August, posting an unchanged reading of 6.4% as forecast.
A UK data lull left the pound rudderless, despite a return to cheery trade following the previous day’s risk-adverse market mood amid escalating tensions in the Middle East.
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Thursday
The pound slumped by more than 1.1% into the 1.18 mid-range against the euro. This left it trading at its lowest level since 20 September, after Bank of England (BoE) Governor Andrew Bailey suggested further signs of cooling inflation could spur the central bank to become “a bit more activist” in its approach to rate cuts.
Meanwhile, the euro was buoyed by the latest PPI figures from the Eurozone, which reported a monthly increase of 0.6%. Compared to the same period in the previous year, the figure fell by 2.3% in the region.
Friday
The UK currency managed to retrace some of its losses following hawkish comments from the BoE’s chief economist Huw Pill, which cautioned against lowering internet rates too quickly:
“While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast. For me, the need for such caution points to a gradual withdrawal of monetary policy restriction.”
Looking ahead
The main driver of movement in the pound euro exchange rate moving into next week will likely be the latest retail sales data from the Eurozone on Monday. If August’s figures confirm another slight uptick in consumer spending, the single currency could garner investor attention.
On Friday, UK GDP figures for August are forecast to show 0.2% expansion after the UK economy stagnated for the second month in a row in July. If the print aligns with forecasts the pound could be given a boost.