The Pound-Euro rate could come under pressure if Eurozone inflation accelerates and reinforces ECB rate hike bets, while Bailey may weigh on Sterling.
The Pound Euro (GBP/EUR) exchange rate wavered between a one-week high and a one-week low last week, amid turbulent trade.
At the time of writing, GBP/EUR was trading at €1.1664, down marginally on the week.
DAILY RECAP:
The Pound (GBP) found some initial support on Monday after analysis from the Resolution Foundation thinktank indicated that UK productivity may have strengthened in recent years, rather than deteriorated.
With little in the way of domestic data to offer further direction, Sterling fluctuated as the week progressed.
The Pound climbed to a one-week high against the Euro on Tuesday before reversing course. A weaker-than-expected Confederation of British Industry (CBI) distributive trades survey and growing concerns over the cost of living, fuelled by rising energy bills, then dented Sterling.
As UK data remained thin for the rest of the week, the Pound continued to trade without a clear direction.
Meanwhile, the Euro (EUR) softened slightly at the start of last week amid a lack of data and EUR’s negative correlation with the US Dollar (USD), as the latter currency crept higher.
The common currency managed to attract some support on Tuesday, after Germany’s final GDP figures for the second quarter were revised slightly higher and the latest IFO business climate index rose more than forecast.
European Central Bank (ECB) expectations helped the Euro rise against the Pound through the latter half of the week, although the currency’s gains elsewhere were limited.
ECB policymaker Isabel Schnabel said on Wednesday that further interest rate hikes are likely, while the bank’s meeting minutes on Thursday reinforced this stance.
An improvement in Eurozone economic sentiment in August, published on Friday, helped the Euro stay afloat through the end of the week.
Near-Term GBP/EUR Forecast: Eurozone Inflation in the Spotlight
Looking forward, EUR investors are likely to focus on the Eurozone’s latest preliminary consumer price index, due out on Tuesday.
The flash CPI is expected to show that headline inflation accelerated from 2.9% in July to 3.3% in August. If it prints as forecast, the Euro could strengthen as markets price in a more hawkish approach to interest rate hikes from the European Central Bank.
For the Pound, the UK’s final services PMI could provide some direction on Thursday. Confirmation of stronger activity in August may offer Sterling some support.
Attention could then turn to a speech from Bank of England (BoE) Governor Andrew Bailey on Friday. If the BoE chief maintains a cautious stance on the need for further interest rate hikes, the Pound could come under pressure.
Our currency coverage draws on live market data, official economic releases and published bank research.
