The Pound-Euro could consolidate near ten-week highs if UK data remains resilient, although stronger Eurozone releases may help the single currency recover.
The Pound Euro (GBP/EUR) exchange rate strengthened last week, as growing expectations of a Bank of England (BoE) interest rate hike and stronger UK growth helped Sterling outperform the single currency.
At the time of writing, GBP/EUR was trading at €1.1765, its highest level in ten weeks and up 1.1% on the week.
Pound to Euro (GBP/EUR): 1.175942 (-0.06%)
Euro to Dollar (EUR/USD): 1.12599 (+0.07%)
DAILY RECAP:
The Pound (GBP) started the week on a firm footing, with comments from Bank of England (BoE) Deputy Governor Dave Ramsden adding to speculation that interest rates could rise in November.
Sterling struggled to find a clear direction on Tuesday as a quiet UK data calendar left the currency without a fresh catalyst. Prime Minister Andy Burnham’s speech at the Labour conference also failed to spark much movement.
Midweek brought renewed support for the Pound, following an upward revision to UK GDP figures. The revised data showed the economy expanded by 0.5% in the second quarter, bolstering expectations of a November rate hike.
Sterling’s gains proved less consistent on Thursday, as the UK’s final manufacturing PMI was revised slightly downwards. However, the index still pointed to improving conditions across the manufacturing sector.
The Pound finished the week on a stronger note, finding support in Burnham’s comments about rebuilding the UK’s relationship with the EU and the prospect of rejoining the bloc.
The Euro (EUR) faced headwinds at the start of the week as a sharp rise in European gas prices fuelled concerns about the bloc’s energy outlook, while the US Dollar (USD) also exerted pressure on the single currency.
EUR extended its losses on Tuesday as the US Dollar continued to strengthen. Eurozone economic sentiment data offered little relief, with the index unexpectedly declining in September for the first time since April.
The single currency traded unevenly midweek as mixed German economic data saw weaker-than-expected retail sales temper the impact of a stronger-than-forecast inflation print.
The Euro came under further pressure on Thursday as a selloff in government bonds, particularly in France, raised fresh concerns about public debt across the Eurozone.
EUR remained on the defensive at the end of the week, despite Eurozone inflation climbing to a three-year high of 3.8% in September. However, steady core inflation of 2.5% supported expectations that the European Central Bank (ECB) would leave interest rates unchanged this month.
Near-Term GBP/EUR Forecast: Eurozone Data to Help EUR Recover?
Looking forward, the only UK release due out this week is the final services PMI on Monday. Confirmation of a slowdown in the vital sector could dent GBP.
Meanwhile, the Eurozone services PMI could confirm an acceleration in services activity, which may support EUR.
Tuesday could see mixed movement in the Euro. German factory orders are forecast to have contracted in August, but Eurozone retail sales are expected to have rebounded in the same month.
Midweek EUR may receive a boost, as Germany’s industrial production figures are anticipated to show a strong recovery in August.
Finally, the ECB meeting minutes on Thursday could also underpin the single currency, if they show a hawkish bias amongst policymakers.
