GBP/EUR exchange rate hits 29-month high in September
Following a relatively subdued start to the month, the pound euro exchange rate dropped to a one-week low in the 1.18 mid-range on 5 September following upbeat German factory orders data.
The pair began edging higher on 10 September supported by UK jobs data and German inflation. UK unemployment dropped to 4.1% in July, retreating from a previous reading of 4.2%. Meanwhile, the euro was undermined by the German consumer price index (CPI) for August, which confirmed inflation cooled below the European Central Bank’s (ECB) 2% target, falling from 2.3% in July to 1.9%.
The pound arrested its gains the following day amid mild headwinds generated by below-forecast UK GDP data for July that remained at 0% rather than increasing to 0.2% as forecast.
The pound euro rate was trapped in a narrow range on 12 September after ECB rate-setters voted to enact a widely expected second interest rate reduction since price pressures started easing.
Having traversed the 1.18 mid-range, the pair ticked higher on 18 September following the publication of a hotter-than-expected UK CPI print for August. Headline inflation held steady at 2.2% rather than dipping to 2.1% as forecast, adding weight to an expected interest rate hold from the Bank of England (BoE).
Meanwhile, the euro was dented following the publication of the Eurozone’s finalised CPI reading, which confirmed headline inflation fell from 2.6% to 2.2% while core inflation ticked lower from 2.9% to 2.8%.
The pound broke through the 1.19 benchmark against the euro the next day after the BoE’s Monetary Policy Committee voted 8-1 to leave rates unchanged at 5% and remained cautious about unwinding policy too quickly.
The pound euro rate struck a two-year high on 20 September following the publication of forecast beating UK retail sales data for August. The UK experienced a larger-than-expected increase in consumer spending, with the data rising from 0.7% to 1%, well above market expectations of a 0.4% increase.
The pair broke through the 1.20 benchmark on 23 September, touching a fresh two-year high following the release of below-forecast PMI data from the UK and the Eurozone.
The pound failed to hold onto its gains, falling into the 1.19 mid-range against the euro amid a return to risk-off flows on 25 September.
The UK currency retraced some of its losses the following day despite the publication of an upbeat German consumer confidence index, as cheery trade buoyed the pound.
The pound euro rate ended the month on a high, jumping to a fresh 29-month peak above the 1.20 benchmark amid cooling German inflation that fuelled bets on a third ECB interest rate cut this year. Headline inflation in the Eurozone’s largest economy eased more than expected in September, dropping from 1.9% to 1.6%, its lowest level since February 2021 – undermining the single currency.
The pound euro exchange rate ended the month a fraction above 1.20.
GBPEUR: 3-Month Chart
Looking ahead
A fallow month in the BoE’s monetary policy meeting schedule means the central bank’s next interest announcement will be made on 7 November.
Influential data from the UK economy in October: ILO Unemployment Rate (15 October), Consumer Price Index (16 October), S&P Global/CIPS Composite (24 October), Retail Sales (25 October).
Economists predict that a recent slew of economic indicators underscoring the Eurozone’s slowing growth will prompt a 0.25% interest rate cut by the ECB on 17 October – a move that could undermine the euro.