GBP/EUR exchange rate week review: pound touches post-Brexit high versus euro
09/12/2024 to 13/12/2024: The pound hit its highest level against the euro since the Brexit vote, as the European Central Bank reduced interest rates and investors bet on diverging monetary policy in the UK and Eurozone.
Monday
An absence of data on both sides meant the risk-sensitive pound couldn’t cling onto its marginal gains against the euro after the single currency was bolstered by its negative trading relationship with an under-pressure dollar.
Tuesday
The pound rose sharply above the €1.21 benchmark, hitting its highest level against the euro since Britain voted to leave the EU eight years ago.
The UK currency was supported by escalating bets that the Bank of England (BoE) will cut interest rates less aggressively than the European Central Bank (ECB). This dovish view of ECB policy was shaped by the central bank’s growing need to perk up an economy facing weaker growth and inflation.
The tepid growth and competitiveness that’s undermining the Eurozone economy is being compounded by the political paralysis that has hit both France and Germany, the region’s two major economies – applying further pressure to the single currency.
Wednesday
The pound continued its upward momentum against the euro, hitting a fresh multi-year high ahead of a widely expected ECB rate cut the following day.
The euro was also undermined by a firming dollar after data showed US inflation barely moved in November, paving the way for further Fed rate cuts.
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Thursday
The pound euro exchange rate rose 0.13% to hit €1.215 after the ECB actioned a widely expected interest rate cut, its fourth this year amid warnings of slower growth. The UK currency continued to be supported by investor bets on diverging monetary policy for the UK and Eurozone.
Friday
The pound euro exchange rate tumbled into the €1.20 mid-range in the wake of the UK’s latest GDP figures. The UK economy unexpectedly shrank for the second straight month in October as concerns about the budget continued to dent confidence.
The monthly GDP change showed a 0.1% drop in September, undershooting the 0.1% expansion forecast by analysts. The economy failed to return to growth after a 0.1% contraction in the previous month.
Looking ahead
A raft of influential data hits the headlines next week: UK, German and Eurozone PMIs on Monday, UK labour numbers on Tuesday, and UK retail sales figures on Friday.
Taking centre stage will be the UK CPI on Wednesday, which is expected to show inflation rose in November. This comes a day before the BoE announces its next decision on monetary policy, in which interest rates are expected to be held.