GBP/EUR exchange rate week review: pound rises to multi-month high against euro
The pound euro (GBP/EUR) exchange rate touched a multi-month high above 1.19 amid contrasting political climates in the UK and France.
(08/07/2024 to 12/07/2024)
Monday
Having touched a 12-day high in the 1.18 mid-range, the pound euro (GBP/EUR) exchange rate arrested its gains amid a data lull.
The UK currency was initially boosted by Rachel Reeves, Britain’s new finance minister, who outlined a raft of measures to breathe new life into Britain’s languishing economic growth and address national housing shortages.
The results from the final round of France’s election on Sunday undermined the euro after it was confirmed that the far-right National Rally party, which won the first round, had fallen to third place.
A left-wing alliance called New Popular Front won the most votes, but fell short of a majority, creating a political vacuum.
Tuesday
The pound fluctuated in a narrow range versus the euro, holding above the 1.18 level.
Political gridlock in France negated market relief that the National Rally party had failed to take power for the first time in the modern republic’s history, causing the euro to soften.
The pound was buoyed by hawkish comments from Bank of England (BoE) policymaker Jonathan Haskel that lessened expectations of an interest rate cut in August: “The labour market continues to be tight, and I worry it is still impaired. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.”
Wednesday
Hawkish remarks, this time from BoE Chief Economist Huw Pill, led investors to dial back their August rate cut expectations further, which lent the pound further support.
Speaking at a lecture in Geneva, Pill dashed hopes of an interest rate cut by saying that he is uncomfortable with the persistence of inflation and strongly hinting he would vote to keep official borrowing costs at 5.25%.
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Thursday
The pound euro rate drifted higher amid cooling inflation in the Eurozone and better-than-expected UK economic growth.
German inflation was confirmed at 2.2% in June in line with expectations, down from 2.4% in May. Easing price pressures in the Eurozone’s largest economy opened the door to further European Central Bank (ECB) rate cuts, which dented the euro.
The UK economy grew by 0.4 % in May, double the forecasted figure and rebounding from zero growth in April – dampening the odds of an interest rate cut in August.
Friday
The pound edged above the 1.19 resistance level, touching a multi-month high against the euro.
With data in short supply, the euro was left exposed to diverging political climates on either side of the English Channel. In the UK, Labour’s majority win has delivered stability, while in France a hung parliament has had the opposite effect.
Looking ahead
UK inflation data hits the headlines on Wednesday. On an annual basis, the CPI is forecast to have slowed to 1.9% in June, down from 2% in May – a reading that would add fuel to August rate cut speculation and pressure the pound.
After June’s initial quarter-point reduction, the ECB is expected to take a breather at its July policy meeting on Thursday, with cuts expected to resume in September.