GBP/EUR exchange rate midweek update: pound slumps against euro after UK inflation rises less than expected
The pound euro (GBP/EUR) exchange rate tumbled from a one-week high after UK inflation picked up less than expected in July, boosting Bank of England rate cut bets.
(12/08/2024 to 14/08/2024)
Monday
The pound euro (GBP/EUR) exchange rate wavered near a one-week high just below the 1.17 benchmark following hawkish leaning comments from Bank of England (BoE) rate-setter Catherine Mann.
Commenting on the UK’s labour market, she said: “There were a lot of new wage agreements in April this year. There will be wage negotiations next year, which will be in relationship to the negotiations that just happened. So, some people at the bottom got quite a bit of an increase, rightfully so. But the ones above them didn’t, which means next year they will, because it’s important to keep relative wages within a hierarchical structure, kind of in relationship to each other.”
Tuesday
The pound broke through the 1.17 resistance level against the euro for the first in just over a week, following a better-than-forecast batch of UK labour numbers.
The UK's unemployment rate fell slightly to 4.2% in the three months to the end of June, down from 4.4% over the first quarter and printing below market projections of 4.5%. Meanwhile, wage growth continued to ease, increasing at an annual rate of 5.4% - the weakest for two years.
The positive figures dampened BoE rate cut bets in the near term, lending the pound support as policy loosening expectations were pushed out to later in the year.
A sharp above-forecast decline in Germany’s latest ZEW economic sentiment indicator for August deterred investors from the single currency. The index tumbled to 19.2 from 41.8 in July, falling well below market expectations of a more modest drop to 32.
Wednesday
The pound euro rate slumped into the 1.16 mid-range in the wake of data showing UK inflation rose less than expected to 2.2% in July, missing forecasts of a slightly larger increase to 2.3%, as underlying price pressures declined. This opened the door to more interest rate cuts by the BoE this year, which weighed on the pound.
Looking ahead
The UK’s preliminary GDP estimate for the second quarter, which is forecast to marginally dip, could prompt upward pound movement, as expected, it remains at robust growth levels.
The euro could be left to trade sideways amid an absence of data releases for the remainder of this week.