GBP/EUR: Euro Jumps vs. Pound As German Coalition Averts Collapse
  • Pound (GBP) looks to BoE rate decision next week
  • Another hike is expected
  • Euro (EUR) looks to German CPI data
  • ECB hiked rates by 25 bps

The Pound Euro (GBP/EUR) exchange rate is rising after losses in the previous session. The pair fell -0.13% yesterday, settling on Thursday at €1.1655 and trading in a range between €1.1626 – €1.1705. At 08:35 UTC, GBP/EUR trades +0.06% at €1.1662.  The pair is on track to rise 1% across the week after two straight weeks of losses.

The euro is falling as investors continue to digest the European Central Bank interest rate decision yesterday. The ECB raised interest rates by 25 basis points in line with expectations, to 3.75%, To match the highest level on record, which was also touched in 2001.

The move by the ECB was the 9th consecutive interest rate hike and comes as the region continues to fight high inflation of 5.5% but signs of a deepening economic slowdown.

Data this week has shown that the German Ifo business sentiment dropped to an 8-month low, and business activity contracted by more than expected. As a result, there are doubts over whether the ECB will be able to raise interest rates much further.

Attention now turns to German inflation data, which is expected to show that consumer prices in the eurozone’s largest economy cooled to 6.2% year on year, down from 6.4% in June. Cooler-than-expected inflation could fuel bets that the ECB is done hiking interest rates.

Meanwhile, the pound is drifting amid a lack of fresh fundamental drivers and as investors look ahead to the Bank of England interest rate decision next week. The central bank is widely expected to raise interest rates by a further 25 basis points. This has been downwardly revised from a previously expected 50 basis point hike following last week, softer than expected UK inflation data.

However with inflation still at 7.9%, which is almost four times the Bank of England’s target rate, there are questions over whether the Bank of England will be able to and its rate hiking cycle.