GBP/EUR exchange rate midweek update: pound strengthens versus euro amid raft of influential data
16/12/2024 to 18/12/2024: The pound euro (GBP/EUR) exchange rate was bolstered by influential economic data that prompted investors to scale back Bank of England interest cut bets.
Monday
The pound euro (GBP/EUR) exchange rate rose sharply to around €1.208 following the release of the UK’s preliminary services PMI for December.
There was an unexpected modest rise in services output to 51.4, as the sector outpaced expectations. Moreover, the PMI indicated persistent inflation in the sector, prompting investors to reduce Bank of England (BoE) interest rate cut bets.
The euro was flat following its own PMI print for December. While the bloc’s services sector unexpectedly returned to growth, overall private sector activity remained in contraction territory.
Tuesday
The pound rose to within touching distance of the €1.21 benchmark versus the euro after the UK’s latest labour market report hit the headlines.
A larger-than-expected acceleration in UK wage growth quelled hopes of a BoE rate cut this week. Growth in average weekly earnings, excluding bonuses, increased to 5.2% from 4.9% in the three months to September, outpacing forecasts for a 5% rise.
Meanwhile, the single currency was undermined by data showing German business morale declined more than expected in December amid geopolitical uncertainty and an industrial deterioration in Europe's largest economy. The Ifo institute’s business climate index fell to 84.7 from a slightly downwardly revised 85.6 in November.
Wednesday
The pound edged above the €1.21 benchmark against the euro after the UK’s latest CPI showed inflation rose to 2.6% in November, in line with expectations. This cemented expectations that the BoE’s Monetary Policy Committee will hold interest rates at 4.75% on Thursday after reducing borrowing costs twice this year.
The euro was clipped by Eurozone consumer prices data showing the annual inflation rate for November was revised slightly down to 2.2% from an initial estimate of 2.3% – fuelling European Central Bank rate cut speculation.
Looking ahead
The BoE is set to leave interest rates unchanged on Thursday, with market pricing suggesting a less than 10% likelihood that the central bank will cut. With the expected move priced into markets, the pound’s upside might be limited.