The pound-euro exchange rate remained mostly range-bound this week, with the pair holding near a two-month high.
The euro, weak in the face of mediocre data
The pound euro exchange rate got off to a slow start this week. While lackluster German trade data weighed on the single currency, sterling was also affected by market pessimism.
The GBP/EUR pair started to rise on Tuesday, as an upward revision to the UK services PMI in November boosted sterling sentiment.
Meanwhile, the euro faced some headwinds in mid-week trading, following the release of the latest industrial data from Germany. A bigger-than-expected drop in factory orders and a surprise contraction in industrial production in October raised concerns that Germany could be at risk of falling into recession.
At the same time, the pound weakened following comments from Bank of England (BoE) Governor Andrew Bailey, who adopted a slightly more cautious tone than in recent weeks.
At the end of the week, GBP/EUR traded without a strong directional bias amid a lack of notable data from the UK and Eurozone.
BoE and ECB interest rate decisions in the spotlight
The movement in the pound euro exchange rate will no doubt be dominated by the latest interest rate decisions from the Bank of England and the European Central Bank (ECB) next week.
Both central banks are scheduled to present their final 2023 rate decisions on Thursday. While neither the Bank of England nor the ECB are expected to change interest rates this month, there is a chance that a sharp divergence in the banks’ forward guidance could take the two currencies in very different directions.
The ECB is believed to be exploring the possibility of up to three rate cuts in 2024, which could weigh on the euro if this is communicated through the bank’s policy statement.
In contrast, a series of hawkish speeches from Bank of England officials in recent weeks suggest the bank may try to downplay expectations of a rate cut next year. Could this help push the pound considerably higher?
Meanwhile, the latest UK jobs report could inject some volatility into sterling in the first half of the week, as economists forecast unemployment will have risen by the start of the third quarter.
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