Pound to Euro End of Week Forecast: GBP/EUR Wavers Despite Surprise German Factory Growth

September 6, 2024 - Written by John Cameron

STORY LINK Pound to Euro End of Week Forecast: GBP/EUR Wavers Despite Surprise German Factory Growth

The Pound Euro (GBP/EUR) exchange rate faced fluctuations on Thursday, despite positive economic releases from the Eurozone.

At the time of writing, GBP/EUR was trading at €1.1859, virtually unchanged from the session's opening levels.

The Pound (GBP) struggled to attract investor interest on Thursday, with a sparse UK economic calendar leaving the Pound largely at the mercy of broader market sentiment.

The lack of fresh UK data meant GBP was primarily driven by risk dynamics, and initial uncertainty in market mood prevented any significant upside for the Pound.

However, Sterling found modest support in the wake of a better-than-expected UK services PMI. The surprising acceleration in the vital services sector boosted optimism around the UK economy, helping GBP remain steady. Further bolstering sentiment was news that the British Chambers of Commerce (BCC) had revised up its growth forecasts for the UK, signalling resilience in the country's economic outlook.

Speculation around the Bank of England’s (BoE) potential path forwards also lent some support to the Pound. Expectations that the BoE may pursue a more measured approach to monetary unwinding compared to other major central banks kept GBP afloat, despite the overall quiet economic backdrop.

Towards the end of the session, an improvement in global risk appetite provided additional tailwinds for Sterling, which has become increasingly sensitive to risk-on sentiment in recent months.

The Euro (EUR) saw initial gains on Thursday, buoyed by a surprise rise in German factory orders.

Orders in Germany, the Eurozone’s largest economy, jumped by 2.9% in July, significantly outperforming market forecasts of a 1.5% decline, though the pace of growth slowed from June’s revised 4.6% expansion.

In addition, Eurozone retail sales posted a modest 0.1% rise in July, recovering from a 0.4% contraction in June. These positive data releases initially provided support for the euro, boosting confidence in the region’s economic recovery.

However, as global markets shifted toward risk-on sentiment later in the session, the euro's safe-haven appeal diminished. Investors favoured riskier currencies, leading to a loss of momentum for EUR as the trading day progressed.

Looking ahead, the Pound-Euro exchange rate could see fresh volatility driven by key Eurozone data releases. Germany’s trade balance report is expected to be a major driver, with a projected rise in the country's trade surplus likely to support the euro. Any unexpected deviation from forecasts could lead to significant EUR movement.

Later in the session, the Eurozone’s Q2 2024 GDP estimate will be under scrutiny. If the data reveals downward revisions, the euro could face pressure, potentially reversing earlier gains.

On the UK side, a quiet economic calendar will leave Sterling vulnerable to broader market sentiment. If risk appetite continues to improve, GBP may benefit due to its increased sensitivity to risk-driven market dynamics.

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TAGS: Pound Euro Forecasts