GBP/EUR exchange rate week review: pound retreats from two-year high against euro
The pound euro (GBP/EUR) exchange rate failed to cling onto its gains following dovish remarks from Bank of England governor, Andrew Bailey.
(23/09/2024 to 27/09/2024)
Monday
The pound euro (GBP/EUR) exchange rate jumped to a fresh two-year high on the back of PMI data from the UK and the Eurozone, breaking through the 1.20 resistance level.
Pound sentiment was eroded by the UK’s preliminary PMI for September which reported that activity in both the services and manufacturing sectors eased, missing expectations for less downbeat readings.
The UK currency’s downside potential was cushioned thanks to both readings remaining in the expansion zone (a print above 50) and the composite print signalling moderate growth levels in the UK.
Meanwhile, the euro was rocked by worse-than-expected PMI figures from the bloc that cemented ongoing economic pessimism in the region. Both the preliminary manufacturing and services indices for September undershot forecasts.
With the manufacturing index still floundering in contraction territory (a reading below 50) and the services sector on the cusp of joining it, the single currency was pushed off a cliff.
Tuesday
The pound’s sharp rise was blunted by remarks from Bank of England (BoE) governor, Andrew Bailey that fuelled European Central Bank (ECB) rate cut speculation: “I do think the path for interest rates will be downwards, gradually,” adding that he was "very encouraged" by the pace of cooling inflation.
Euro gains were capped by the German IFO business climate index for September, which reported that optimism dipped for a fourth consecutive month and by more than forecast. The lacklustre reading added to signs that the Eurozone’s largest economy may have entered recession.
Wednesday
The pound dropped into the 1.19 mid-range versus the euro amid a risk-off market mood, which buoyed the safe-haven single currency.
This represented a shift in market sentiment from earlier in the week when China announced its largest raft of economic stimulus since the pandemic.
However, the euro’s gains were capped by an absence of market moving data from the bloc, exposing it to the Eurozone’s current economic woes.
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Thursday
The pound euro rate jumped back above the 1.20 level amid a return to positive trading conditions.
However, the UK’s latest consumer sentiment index from the British Retail Consortium thwarted further gains for the pound. The reading plummeted from -8 to -21 ahead of the upcoming Autumn Budget, which is expected to deliver a slew of tax rises.
The move higher also followed the publication of deceptively upbeat data from the beleaguered German economy that served to undermine the euro. The latest GFK consumer confidence index reported a marginal uptick in morale for the month ahead, increasing from -21.9 to -21.2, exceeding a more modest forecast of 21.5 – signalling what economists described as ‘a stabilisation at a low level’.
Friday
The pound euro rate firmed amid data showing Eurozone economic sentiment weakened and UK retail sales nudged higher.
The European Commission’s economic sentiment indicator for September dropped by 0.3 points to 96.2, reversing much of the previous month’s surprise 0.6 uplift, as the region’s economic recovery struggled to gain traction – causing the euro to trend lower.
The Confederation of British Industry’s latest distributive trades survey reported that retail sales volumes grew marginally in the year to September, with a weighted balance of 4, the highest since May and ending a three-month downturn – causing the pound to firm.
The pound euro rate ended the week around 1.197.
Looking ahead
A slew of data is scheduled for release from the German economy on Monday. The euro could be undermined if retail sales numbers point to a downturn in consumer spending, and the latest inflation reading for September, which currently stands at 1.9%, cools further below the ECB’s 2% target.
Monday also sees the release of the UK’s final GDP print for Q2, which is expected to report a 0.6% growth level, which could lift the pound.
Inflation data for the wider Eurozone area lands on Tuesday, which is forecast to report a drop to the ECB’s 2% target from 2.2% the previous month – an outcome that could ramp up rate cut bets, which would apply downward pressure to the euro.