The Pound-Euro rate could slip if UK GDP confirms a weak start to Q3, while a more hawkish Lagarde may offer the Euro fresh support.
The Pound to Euro (GBP/EUR) exchange rate held its ground on Thursday, despite another interest rate hike from the European Central Bank (ECB).
At the time of writing, the GBP/EUR exchange rate was trading at around €1.1640. Virtually unchanged from the start of Thursday’s session.
DAILY RECAP:
The Euro (EUR) was rangebound on Thursday as the European Central Bank concluded its September policy meeting.
As was widely expected ahead of the meeting, the bank delivered its second interest rate hike of the year, with a 25-basis-point increase raising rates to 2.65%.
With the rate hike fully priced in ahead of time, subsequent movement in the Euro was dictated by the bank’s guidance.
This left the single currency to soften as the bank’s policy statement and accompanying remarks from ECB President Christine Lagarde failed to meet EUR investors’ more hawkish expectations.
The Pound (GBP) traded sideways on Thursday as a continued lack of major UK economic releases left Sterling without a clear domestic catalyst.
With the UK data calendar relatively quiet ahead of Friday’s GDP, industrial production and trade figures, GBP investors instead remained focused on developments in the UK bond market and the broader inflation outlook.
The latest stabilisation in gilt yields provided some respite after an intense period of volatility. UK borrowing costs had surged earlier in the week, with the yield on 30-year gilts hitting a record 5.82% at Tuesday’s government debt sale, the highest level since the Debt Management Office was established in 1998.
Near-Term GBP/EUR Forecast: Stalling UK Growth to Sap Sterling Sentiment?
Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate at the end of the week will be the publication of the UK’s latest GDP figures.
The latest month-on-month growth figures are forecast to show the UK economy stagnated in July, following a 0.3% expansion in June.
Such a weak start to the third quarter could weigh on Sterling, as it may complicate the Bank of England’s (BoE) policy path, which must balance controlling inflation while not choking off growth.
Meanwhile, Lagarde is scheduled to speak again on Friday. If she strikes a slightly more hawkish note than she did at the ECB’s press conference on Thursday, it may lend some support to the Euro.
Our currency coverage draws on live market data, official economic releases and published bank research.
