GBP/EUR exchange rate week review: pound strikes two-year high against euro

(16/09/2024 to 20/09/2024)

Monday

The pound euro (GBP/EUR) exchange rate traversed the 1.18 mid-range amid an economic data lull that brought the UK government’s upcoming Autumn Budget into sharp focus for investors.

Concerns are mounting that Chancellor Rachel Reeve could be gearing up to enact a slew of sharp tax raises and spending cuts to tackle a £22bn ‘black hole’ in UK public finances – a move economists think could hobble the domestic economy.

The safe-haven single currency remained buoyant thanks to its negative trading relationship with the dollar, which was feeling the weight of an expected rate cut by the Federal Reserve. However, its upside potential was limited by improving risk sentiment in markets.

Tuesday

The pound euro rate traded without a clear direction in the 1.18 mid-range despite evidence of declining economic optimism in Germany that undermined the single currency.

The ZEW economic sentiment index for the bloc’s largest economy hit its lowest level since October 2023 after posting a sharper-than-expected drop – its third in a row.

Wednesday

The pound spiked versus the euro, falling just short of 1.19, following the publication of the UK’s latest inflation data.

The UK consumer price index (CPI) remained at 2.2% in August in line with forecasts, adding weight to expectations of an interest rate hold from the Bank of England (BoE) on Thursday and keeping another cut on the cards this year. Meanwhile, both core inflation and services inflation warmed.

The euro was dented by the Eurozone’s finalised CPI, which showed headline inflation fell to a three-year low, stoking European Central Bank (ECB) interest rate speculation.

Contact a currency specialist to discover how they can help you take control of exchange rates.

Thursday

The pound broke through the 1.19 benchmark against the euro after the BoE’s Monetary Policy Committee voted 8-1 to leave rates unchanged at 5% and remained cautious about loosening policy too quickly.

The meeting minutes said: "In the absence of material developments, a gradual approach to removing policy restraint remains appropriate,"

BoE Governor Andrew Bailey said: Andrew Bailey said interest rates are on a "gradual path down," but the Bank needs more supportive economic evidence to make further cuts.

"I think we’re now on a gradual path down. That’s the good news. I think interest rates are going to come down. I’m optimistic on that front, but we do need to see some more evidence. We need to see that sort of residual element now fully taken out... to keep inflation sustainably at the 2% target,"

Friday

The pound euro rate struck a two-year high around 1.192 following the publication of better-than-expected UK retail sales data.

The UK currency’s upward momentum was driven by a sharp 1% rise in sales volumes in August, surpassing economists' forecasts. This marked an ongoing recovery, following a 0.7% increase the previous month, and lifted year-on-year sales by 2.5%, outpacing estimates of a 1.4% rise.

The robust figures boosted pound sentiment further this week, following cooler-than-expected UK inflation data and the BoE’s dovish rate hold.

Looking ahead

The UK’s and the Eurozone’s preliminary PMIs for September hit the headlines on Monday. Another positive UK PMI print could add to pound tailwinds. Meanwhile, another mixed Eurozone reading could weigh on the euro at the start of the week.

The euro could be dealt a further blow if Germany’s latest IFO business climate reading remains near seven-month lows on Tuesday.

Find out how a currency specialist can help you navigate the unpredictable currency markets.