GBP/EUR exchange rate week review: pound slumps versus euro following BoE rate cut
The pound to euro (GBP/EUR) exchange rate sunk into the 1.17 range after the Bank of England enacted its first interest rate cut since 2020.
(29/07/2024 to 02/08/2024)
Monday
The pound euro (GBP/EUR) exchange rate was pressured by reports of a £20bn black hole in the UK’s public finances. Subsequent speculation about new tax to fill the gap, together with concerns about the overall health of the UK’s finances, caused the pair to edge down to 1.182.
Tuesday
The pound rebounded to around 1.188 against the euro after the UK’s new finance minister Rachel Reeves put to bed any concerns about potential tax plans ahead of the Autumn budget.
Encouraging GDP figures from the bloc, showing the Eurozone’s economy grew by more than expected between April and June, had little impact on the single currency.
The euro was also shackled by a risk on market mood that deterred investors from the safe-haven currency,
Wednesday
The pound dropped to around 1.184 versus the euro amid an unexpected rise in Eurozone inflation. This led investors to scale back bets on an interest rate rise from the European Central Bank (ECB) in September, which buoyed the euro.
Conversely, the pound was dented by increased Bank of England (BoE) rate cut chatter ahead of the central bank’s August policy announcement the following day.
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Thursday
The pound euro rate fell to a fraction above 1.18 after the BoE’s Monetary Policy Committee (MPC) narrowly voted through its first interest rate cut since 2020.
Five of the MPC’s nine monetary policymakers voted to reduce the bank’s base rate. The pound’s downside was partially capped by hawkish minutes from the central bank’s policy meeting explaining why some officials opposed the August rate cut:
“These members thought that there was a greater risk of more enduring structural shifts, such as a rise in the medium-term equilibrium rate of employment, a fall in potential growth and a rise in the long-run neutral interest rate, contributing to domestic inflationary persistence. They preferred to maintain the current level of Bank Rate until there was stronger evidence that these upside pressures would not materialise.”
Friday
The pound continued its decent versus the euro, falling to around 1.172, its lowest level in a month, in the wake of the BoE’s interest rate cut – a quarter-point reduction that saw the base rate retreat from a sixteen-year high of 5.25% to 5%.
A cautious market mood applied further pressure to the increasingly risk-sensitive pound.
The single currency ended the week trading without a clear direction amid an absence of influential data from the Eurozone.
Looking ahead
A lack of notable data from the UK economy next week could leave the pound exposed to the fallout from the BoE’s interest rate cut.
BRC Like-For-Like Retail Sales, which is forecast to show an improved performance in the UK retail sector in July, could lend the UK currency some much-needed support on Monday.
Eurozone retail sales data, which is forecast to show a slight decline in sales volumes in June, could be a catalyst for euro movement on Tuesday. As could German inflation numbers on Friday.