The pound-euro exchange rate fluctuated this week, with sterling managing to recoup its losses after the European Central Bank (ECB) left interest rates unchanged.
Euro falls as ECB leaves rates unchanged
The Pound Euro exchange rate swung earlier in the week as both currencies came under pressure following the gloomy PMI data.
The latest surveys showed business activity continued to contract in both the UK and eurozone this month, raising recession fears.
Although the eurozone figures were worse than the British ones, signs of a cooling British labor market prevented the pound from capitalizing against the euro.
In midweek, the single currency found some success after German business morale improved more than expected. Meanwhile, sour market sentiment weighed on the increasingly risk-sensitive pound.
The euro gave up these gains on Thursday after the ECB paused its policy tightening cycle after 15 months of consecutive rate hikes.
ECB President Christine Lagarde also indicated that the bank expects inflation to continue to cool, while warning that the eurozone economy will likely “remain weak.” This fueled speculation that the ECB will no longer raise rates. GBP/EUR rose in response.
This caused the pound-euro exchange rate to end the week broadly where it had started, with the currency pair faltering on Friday morning in the absence of any new high-impact data releases.
Bank of England decision to put a dent in the pound?
Next week it will be the turn of the Bank of England (BoE), which will meet on Thursday to set interest rates.
Economists expect the Bank of England to leave interest rates unchanged again, which could undermine the appeal of the pound. However, signs that the bank is open to further rate hikes in the future may help cushion any decline.
Before the Bank of England’s decision, two high-impact releases will be released in the eurozone: third quarter GDP growth and the October consumer price index.
According to forecasts, inflation in the bloc will have cooled rapidly again, from 4.3% to 3.4%. This could further weigh on the ECB’s interest rate expectations, thus pushing the EUR lower.
In addition, the eurozone economy is expected to have contracted by 0.1% in the third quarter, which may raise fears of recession and exacerbate the euro’s problems.
Overall, next week could bring more major swings in the pound-euro pair as high-impact events drive volatility.
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