The Pound-Euro rate could build on recent gains if UK inflation strengthens BoE rate expectations, although softer jobs data may limit Sterling’s upside.
The Pound Euro (GBP/EUR) exchange rate rose at the end of last week as stronger-than-forecast UK GDP lifted Sterling.
At the time of writing, GBP/EUR was trading at €1.1659, up 0.2% on the week.
Pound to Euro (GBP/EUR): 1.16788 (+0.14%)
Euro to Dollar (EUR/USD): 1.153739 (-0.53%)
DAILY RECAP:
The Pound (GBP) was steady at the start of the week amid a speech from Chancellor John Healey. During his first major address, he highlighted plans to encourage economic growth while assuring markets that he would maintain a responsible approach to the public finances. The comments provided some modest support for GBP.
Sterling struggled to establish a clear trend as the week progressed, with a lack of major UK data leaving it largely directionless.
Friday brought a stronger UK GDP reading, with the latest figures showing the economy expanded by 0.3% in July, beating expectations. The result boosted GBP, helping it end the week on stronger footing.
The Euro (EUR) struggled to attract support at the start of last week after Germany’s latest industrial production figures showed a shock contraction in factory output. The decline offset the boost from upwardly revised Eurozone GDP figures.
The single currency remained subdued on Tuesday, with Germany’s trade data offering little encouragement. Although the trade surplus widened to €21.3bn in July, its largest since August 2024, this was largely driven by a sharper fall in imports than exports.
EUR edged higher on Wednesday as the US Dollar (USD) softened, although anticipation ahead of the European Central Bank’s (ECB) interest rate decision limited the Euro’s gains.
The ECB’s decision on Thursday saw the Euro trade largely sideways. While the central bank delivered an expected rate hike, its guidance fell short of hawkish expectations, weighing on EUR. The single currency then remained subdued on Friday as a lack of Eurozone data and fading safe-haven demand limited movement.
Near-Term GBP/EUR Forecast: BoE Interest Rate Decision in the Spotlight
Looking ahead, the UK’s latest labour market report will be the first major data point to watch this week. With unemployment expected to have risen in the three months to July, the Pound could come under pressure, especially if the figures also show wage growth losing momentum.
Wednesday’s UK consumer price index is likely to be the next potential boost for Sterling. The consensus points to both headline and core inflation picking up in August, with the headline rate forecast to rise from 2.9% to 3.1%.
The week’s biggest event could come from the Bank of England (BoE). With no change to interest rates anticipated, attention will instead turn to the bank’s guidance on what comes next. A more cautious message could drag on the Pound, whereas a more hawkish stance may lend GBP support. The employment and inflation figures released earlier in the week could play a part in shaping that message.
Rounding off the Pound’s agenda, UK retail sales are forecast to fall in August, which could put further pressure on GBP on Friday.
For the Euro, the key release is Germany’s ZEW economic sentiment index for September. A forecast improvement this month could boost the single currency.
Later in the week, speeches from ECB policymakers could influence EUR.
