The Pound-Euro rate could remain under pressure if the ECB stays hawkish, while Healey’s speech will be crucial for restoring confidence in UK assets.
The Pound Euro (GBP/EUR) exchange rate fell to a two-month low last week as UK bond market turmoil weighed on Sterling.
At the time of writing, GBP/EUR was trading at €1.1633, down 0.4% on the week.
DAILY RECAP:
After a subdued bank holiday Monday, the Pound (GBP) then experienced mixed movement on Tuesday. Expectations of a Bank of England (BoE) interest rate hike initially gave Sterling a boost, but a sharp rise in bond yields unsettled GBP investors and prompted the Pound to give back its gains.
Sterling struggled on Wednesday as gilt yields climbed again, reaching a 19-year high.
Bond market jitters remained a drag on Sterling on Thursday, as did a weaker-than-forecast final services PMI. However, GBP seemed to enter oversold conditions and bounced off its worst levels.
However, the Pound ultimately remained down on the week.
Meanwhile, the Euro (EUR) rose last week as signs of persistent Eurozone inflation boosted European Central Bank (ECB) interest rate hike bets.
The bloc’s preliminary consumer price index on Tuesday showed that headline inflation rose from 2.9% to 3.3% in August.
In addition, the Eurozone producer price index on Thursday exceeded forecasts to show a 1.6% jump in July.
Stronger-than-forecast German factory orders failed to push EUR even higher on Friday, with the common currency seemingly hitting a ceiling.
Near-Term GBP/EUR Forecast: ECB Decision to Boost the Euro?
Looking ahead, UK Chancellor John Healey is set to make his first major speech on Monday, potentially giving the Pound a fresh catalyst for movement.
Healey is expected to outline measures aimed at supporting the UK’s fragile economic growth, while seeking to reassure bond markets that the government remains committed to its fiscal rules.
A favourable response could give GBP a lift, while Sterling may come under pressure if the speech disappoints or raises concerns in the bond market.
Friday’s GDP figures will be the week’s key UK data release. Should the British economy have slowed in July as forecast, the Pound could finish the week on weaker footing.
As for the Euro, the focus will be on the ECB’s interest rate decision. A rate hike could lift EUR, although it’s already largely priced in, likely leaving the focus on the bank’s forward guidance. A hawkish tone could lift the single currency.
Our currency coverage draws on live market data, official economic releases and published bank research.
