The pound-euro exchange rate hit a one-month high this week as better-than-expected UK data bolstered expectations for Bank of England (BoE) interest rates.
Pound boosted by strong UK data
The pound-euro exchange rate opened this week on a good note. However, this was mainly due to the weakness of the euro. The euro came under pressure from its negative correlation with the US dollar, while the British pound struggled to find its own momentum amid limited data.
The release of the latest UK jobs report extended GBP/EUR’s rise on Tuesday, as June’s record surge in wage growth helped offset an unexpected rise in unemployment over the same period.
At the same time, a surprising improvement in German economic sentiment helped the euro limit its losses against the pound.
Sterling’s appreciation accelerated mid-week. This came thanks to the latest UK consumer price index.
While July CPI figures reported that headline inflation slowed from 7.9% to 6.8%, core inflation unexpectedly remained at 6.9%. Coupled with a record rise in wage growth in the UK, this reinforced the Bank of England’s rate hike bets and propelled the GBP/EUR pair to a new one-month high.
After stabilizing on Thursday due to a lack of data, the Pound Euro exchange rate dropped at the end of the week following the release of the latest UK retail sales figures. While sales growth fell 1.2% in July.
Will Euro be pressured by weak PMIs?
The euro could face some resistance next week, with the release of the latest eurozone PMIs.
We have seen a sustained decline in the bloc’s private sector in recent months, a downward trend that is expected to have persisted into August. The single currency could come under particular pressure if the services index falls back into contraction territory for the first time this year.
The end of the week could see the euro pressured by the release of Germany’s latest IFO business climate index, as economists expect business morale to have deteriorated for the fourth consecutive month in August.
Meanwhile, the pound could also face headwinds with the release of the UK’s own PMIs, assuming the recent slowdown in activity continues this month.
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