GBP/EUR: UK Politics & German Sentiment Data To Drive Movement
  • Pound (GBP) rebounds from weekly loss
  • Chancellor’s Budget later in the week
  • Euro (EUR) looks to German IFO Business sentiment data
  • ECB rate decision due later in the week

The Pound Euro (GBP/EUR) exchange rate is heading higher at the start of the week, paring losses from last week. The pair shed 0.5% across the previous week settling on Friday at €1.1802 after rising as high as €1.1878 earlier in the week. At 05:45 UTC, GBP/EUR trades +0.16% at €1.1821.

The Pound rallied hard at the beginning of last week amid growing expectations that the Bank of England could look to raise interest rates as soon as this December. However, data towards the end of the week forced Pound investors to reprice rate hike expectations. On Wednesday UK inflation as measured by consumer prices unexpectedly ticked lower to 3.1% in September down from 3.2% in August. Despite the decline CPI is still expected to rise to 4% by the end of the year.

On Friday retail sales also unexpectedly fell in September, contracting for a fifth straight month, suggesting that higher prices could be encouraging consumers to rein in their spending. However, better than forecast PMI data eased some concerns.

Looking ahead this week is a relatively quiet week as far as data is concerned for the UK. The focus will be on the Chancellor Rishi Sunak’s Autumn Budget on Wednesday.

Covid cases will also be under the spotlight as number continue to rise prompting fears that some COVID restrictions could be reimposed.

The Euro managed to gain ground versus the Pound despite weaker than forecast PMI data on Friday. Whilst the bloc manufacturing PMI beat forecasts it still slowed to an eight month low. Manufacturing output dropped to 53.2 a 16 month low amid the on going supply chain disruptions. The services PMI declined by more than analysts expected suggesting that GDP growth is slowing.

This week the main focus will be on the European Central Bank which is due to give its monetary policy decision on Thursday. The ECB has remained cautious compared to its major peers with regards to tightening monetary policy.

Today, German IFO business sentiment data is in focus. The closely watched Business climate index is expected to fall again in October to 97.9 from 98.8.