- Pound (GBP) fell on Friday and across the week
- The BoE may cut rates more aggressively next year
- Euro (EUR) rose across the week
- German GDP contracted -0.3% QoQ in Q2
The Pound-Euro (GBP/EUR) exchange rate is inching lower after modest gains yesterday. The pair rose 0.03% in the previous session, settling on Thursday at €1.1554. It traded between €1.1538 and €1.1574. At 21:30 UTC on Friday, GBP/EUR settled -0.10% at €1.1545. The pair fell -0.43% across the week, after three straight weeks of gains.
The pound fell on Friday and dropped across the week despite hotter than expected UK inflation data, stronger than forecast PMI figures and data showing the UK borrowed less than expected in July.
UK’s inflation rose 3.8% month on month, which, combined with stronger than expected PMI data, is usually expected to boost the pound. However, the fact that the pound fell points to nerves within the market regarding the outlook for the UK economy.
Whilst the Bank of England is not expected to cut interest rates again this year, with the next rate cut forecast for February, however, the central bank may be forced to cut rates more aggressively next year as trans gather on the horizon.
The euro is rising despite weak economic growth in Germany, the world’s largest economy. German GDP was downwardly revised to a 0.3% contraction in the April to June period. A sharper contraction than the 0.1% previously estimated. This reflects a deeper slump in manufacturing and investment than first thought.
Germany is back into recession territory and could struggle to stage a meaningful recovery before next year.
German GDP has contracted in six of the past ten quarters and hovers around levels last seen in 2019.
The data comes after ECB president Christine Lagarde warned over growth in the eurozone region, which she expects to slow in the third quarter as the front-loading effects seen in the earlier quarters of the year fade.
Looking ahead to next week, attention will be on German Ifo business climate, GfK consumer confidence from Germany, as well as retail sales from the region, which are expected to slow to 0.2% down from 1% month on month.