The pound-euro exchange rate traded in a wide range this week, following the release of some high-impact data from the United Kingdom.
Pound shaken by jobs and inflation releases
The pound euro exchange rate initially firmed this week. The increasingly risk-sensitive pound was supported by a cautiously optimistic mood. While a pause in the data left the euro trading directionless.
The pound’s rise was reinforced on Tuesday when the latest UK jobs report was more upbeat than expected. At the same time, the euro was left on the defensive, despite a stronger-than-expected rebound in German economic sentiment this month.
The GBP/EUR exchange rate then faltered mid-week as UK inflation came in below expectations in October, further undermining the Bank of England’s (BoE) interest rate expectations.
Entering the second half of the week, the euro was able to consolidate its recovery against the pound, as the poor market mood and the weakening of the US dollar reinforced demand for the safe-haven currency.
Closing out the week was the publication of the latest UK retail sales figures. This put further pressure on sterling after an unexpected contraction in sales growth last month stoked fears that the UK could fall into a recession.
UK autumn statement in focus
As for next week, the focus appears to be on the UK’s Autumn Statement, which will be delivered by Chancellor of the Exchequer Jeremy Hunt on Wednesday.
Hunt will outline the government’s plans for tax and public spending and respond to the latest forecasts from the Office for Budget Responsibility (OBR).
Anyone expecting Hunt to announce major tax cuts or spending plans will likely be disappointed. Hunt previously warned that such measures would be “virtually impossible”. Could a lukewarm response to the statement lead to the pound weakening?
Also influencing sterling exchange rates next week will be the latest UK PMIs. Preliminary figures for November are expected to indicate another contraction in UK private sector growth, likely to drag sterling lower in the process.
The eurozone’s own PMI figures are likely to act as the main catalyst for the euro’s move next week. Private sector activity is also forecast to fall again this month, with a deeper contraction than in the UK, which could lead to even more pressure being put on the single currency.
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