GBP-EUR Exchange Recovers from Six-month Low in November
The GBP-EUR pair stumbled below the 1.15 level at the start of the month following news that the Bank of England (BoE) voted to keep interest rates unchanged at 5.25% – stoking speculation that it had reached the end of its tightening cycle.
Thankfully for the UK currency, its fall was cushioned by a hawkish split among the central bank’s Monetary Policy Committee.
The pound soon managed to regain its losses after dismal US employment data undermined Federal Reserve rate hike bets – igniting market risk appetite that eroded the dollar.
Having peaked in the 1.15 midrange, the GBP-EUR pair began to retrace its steps following soft UK housing data and robust numbers from the eurozone that encouraged euro investors.
The pound’s steady decline was compounded by a pullback in BoE rate hike bets and a dip in the dollar that lent the euro support before the publication of the UK’s latest GDP figures dealt it a chastening blow.
Despite printing above expectations, stalling third-quarter growth in the UK dragged the GBP-EUR pair to a new six-month low a whisker above the 1.14 benchmark.
The pound managed to recalibrate after the latest US inflation print came in below expectations, raising expectations that the Fed would no longer have to hike interest rates – encouraging investors to flock to riskier assets like the UK currency.
Having rebounded to within touching distance of the 1.15 benchmark by 14 November, sentiment for the pound soured following October’s inflation data which revealed that price pressures eased beyond expectations in the UK. Meanwhile, the euro was benefitting from relative weakness in the dollar, to which it is negatively correlated.
By 16 November, the GBP-EUR pair was languishing near a six-month low in the wake of the UK’s latest inflation figures, which had sparked a pound sell-off as investors significantly scaled back bets on another BoE interest rate hike.
A further slump followed the publication of the UK’s latest retail sales figures, after a surprise contraction in sales growth stoked UK recession fears, dragging the pound to 1.14125 on 17 November – a fresh six-month low.
The UK currency was boosted by hawkish comments from BoE policymakers who reaffirmed their commitment to getting inflation back to the central bank’s 2% target.
The upward movement was short-lived for the GBP-EUR pair after UK Chancellor Jeremy Hunt’s budget underwhelmed. Alongside the Autumn Statement, the Office for Budget Responsibility (OBR) revised its growth forecasts for the UK economy downward, from 1.8% to 1.6% growth.
The pound was revitalised the following day as the UK’s latest PMI data printed above forecasts – causing the pound to spike above 1.15 against the euro. This outweighed November’s flash PMI data from the eurozone, which showed services and manufacturing activity in both Germany and the wider euro area exceeded forecasts.
Having broken above the 1.15 benchmark – its highest level in over two weeks – the pound was able to consolidate amid persistent speculation that the BoE will keep interest rates high for longer.
In the absence of notable data from the UK economy, the GBP-EUR pair traversed the lower half of the 1.15 range for the remainder of the month.
GBPEUR: 3-Month Chart
Looking ahead
Rate cut speculation has been tempered by hawkish comments from BoE rate-setters ahead of the central bank’s next policy meeting on 14 December.
Influential data from the UK economy in December: Claimant Count Change (12 December), Consumer Price Index (13 December), Retail Sales (15 December), S&P Global/CIPS Composite PMI (20 December), GDP (22 December).