GBP/EUR exchange rate week review: pound trades sideways against euro ahead of BoE interest rate decision
The pound was subdued against the euro despite a raft of macroeconomic data from the UK and Eurozone economies.
(29/04/2024 to 03/05/2024)
Monday
The pound euro (GBP/EUR) exchange rate ticked above 1.17 following the release of German CPI data that undermined the common currency. The print showed year-on-year inflation in the bloc’s largest economy held steady at 2.2% rather than warming to a predicted 2.3%.
Meanwhile, the pound traded without a clear direction amid the absence of notable data.
Tuesday
The pound euro pair faced resistance in the wake of data from the Eurozone showing stronger-than-expected economic growth and cooling core inflation, which boosted the single currency.
The prints combined to dampen expectations for ECB interest rate cuts, although June remains the popular bet for the central bank to begin loosening policy.
A broadly risk-off market mood ensured demand for the pound remained limited.
Wednesday
Having dipped below 1.17, the pound was flat against the euro after it was confirmed the UK manufacturing sector contracted in April amid rising price inflation.
The manufacturing PMI printed at 49.1, up from 50.3 in March and 48.7 in the mid-month ‘flash’ estimate. A PMI reading below 50 indicates an industry in contraction.
The euro treaded water due to Labour Day market closures.
Thursday
The pound drifted lower against the euro following the latest UK economic forecasts from the Organisation for Economic Co-operation and Development (OECD).
The UK will be the worst-performing economy in the G7 next year, according to the OECD, which cited high interest rates as the catalyst for the drag on growth.
The think tank’s downbeat assessment also included a downgraded forecast for UK growth this year to 0.4% from a November estimate of 0.7%.
The growth downgrade may ramp up pressure on the Bank of England (BoE) to start unwinding interest rates.
Investor sentiment towards the euro was sapped slightly by its safe haven status amid a cautiously upbeat market mood.
The single currency traded on the back foot following the publication of the Eurozone’s manufacturing PMI for April, which reported contraction in the bloc’s factory activity as it deepened to a four-month low.
Friday
The pound euro rate hovered just below 1.17 as positive economic prints from both the Eurozone and UK caused the pair to trade sideways.
The finalised S&P Global UK Services Purchasing Managers’ Index jumped from 53.1 the previous month to 55 in April – its highest reading since May 2023, which also exceeded market forecasts of 54.9.
The euro struggled to evoke investor interest early in the trading session, despite positive news for the bloc’s labour market.
The Eurozone’s unemployment rate remained at a record low in March, a sign of the robustness in its jobs market that will give ECB rate-setters food for thought amid concerns over stubborn wage growth.
Unemployment was static at 6.5% in the 20-member bloc, the same as in every month since November and matching a consensus of economists.
The pair tumbled into the 1.16 mid-range as the week concluded after US non-farm payrolls and US unemployment missed forecasts. Easing US job creation and rising unemployment sparked a risk-on market rally, causing the increasingly risk-sensitive pound to fall against the euro as the single currency strengthened on the back of its negative correlation with a weakened dollar.
Looking ahead
Retail sales data from the bloc hits the headlines on Tuesday 7 May, which could show signs of recovery amid cooling inflation.
The BoE announces its latest interest rate decision on Thursday 9 May. While it is expected to keep borrowing costs on hold at 5.25%, where they've been since August 2023, investors will be monitoring the accompanying report and press conference for answers to three key questions:
· When will policy loosening begin in 2024?
· Where does the central bank expect inflation to go this year?
· Can it rule out a rate increase this year?