Pound-Euro could remain under pressure if Eurozone inflation accelerates, while any UK GDP revision may drive Sterling volatility.
The Pound Euro (GBP/EUR) exchange rate fell to a 12-week low last week as weaker UK data dented Sterling and upbeat Eurozone data supported the single currency.
At the time of writing, GBP/EUR was trading at €1.1615, down around 0.4% on the week.
Pound to Euro (GBP/EUR): 1.162689 (+0.11%)
Euro to Dollar (EUR/USD): 1.139251 (+0.16%)
DAILY RECAP:
The Pound (GBP) began the week on a weaker footing after UK consumer confidence dropped to a three-year low.
Sterling then struggled after figures revealed a sharp rise in UK government borrowing in August.
GBP faced fresh selling pressure midway through the week as the UK services PMI fell more sharply than forecast, dropping to 51.7 in September from 52.5 in August.
The Pound remained subdued as further evidence of softer consumer spending emerged. The latest Confederation of British Industry’s (CBI) distributive trades survey showed retail order volumes had fallen to a record low in September.
Sterling recovered some ground towards the end of the week after Bank of England (BoE) Governor Andrew Bailey warned that persistently high energy prices could make it more difficult for the central bank to avoid raising interest rates. However, GBP remained lower overall.
Meanwhile, the Euro (EUR) faced modest headwinds at the start of the week after Germany’s regional election results rattled EUR investors.
EUR then wavered amid a lack of Eurozone data, with easing oil prices helping to soothe concerns about an energy crunch while a stronger US Dollar (USD) applied pressure.
The Euro subsequently found support as September’s Eurozone manufacturing and services PMIs both exceeded expectations, pointing to stronger-than-forecast activity across the bloc.
EUR extended its gains as Germany’s latest IFO survey showed business sentiment climbing to a three-year high in September.
However, the single currency came under pressure at the end of the week after German consumer confidence deteriorated more than expected.
Near-Term GBP/EUR Forecast: Eurozone Inflation to Propel Euro Higher?
Looking ahead, EUR investors will likely focus their attention on the Eurozone’s latest consumer price index, due on Friday. September’s flash CPI is forecast to show that headline inflation accelerated from 3.2% to 3.5%, while core inflation rose from 2.4% to 2.6%. This could boost the Euro by fuelling bets on another European Central Bank (ECB) interest rate hike.
Meanwhile, the UK economic calendar is relatively quiet this week, with the final GDP figures and manufacturing PMI the main releases likely to attract attention.
Wednesday’s GDP figures are expected to confirm that the UK economy lost some momentum in the second quarter, while still maintaining a relatively solid pace of growth. A downward or upward revision could see Sterling come under pressure or strengthen, respectively.
Later in the week, the final manufacturing PMI could provide some modest support for GBP if it confirms that activity improved in September.
Our currency coverage draws on live market data, official economic releases and published bank research.
