Pound to Euro Outlook: Sterling Flat despite Lacklustre German Data

September 18, 2024 - Written by John Cameron

STORY LINK Pound to Euro Outlook: Sterling Flat despite Lacklustre German Data

The Pound Euro (GBP/EUR) exchange rate treaded water on Tuesday following the release of Germany’s latest ZEW economic sentiment index.

At the time of writing, the GBP/EUR was trading at around €1.1872, virtually unchanged from Thursday’s opening levels.

The Euro (EUR) found itself on the defensive against most of its peers on Tuesday following a sharp decline in Germany's latest ZEW economic sentiment index.

The latest indicator revealed that morale in Germany plunged to its lowest level since October 2023, registering at 3.6 and extending its retreat from August's seven-month low of 19.2.

This marked the third consecutive drop in economic sentiment within the Eurozone’s largest economy, which weighed on the single currency.

The Pound (GBP) traded largely flat on Tuesday, with a dearth of impactful data leaving Sterling devoid of clear direction.

However, Bank of England (BoE) interest rate cut expectations lent some aid to GBP exchange rates ahead of the central bank’s looming decision.

Market participants speculated that the BoE may take a less aggressive stance on policy easing compared to other major central banks, boosting Sterling sentiment.

Michael Field, European Market Strategist at Morningstar, speculated:

‘The chances of a further rate cut in September are slim, according to a recent poll of economists by Reuters, with almost all surveyed believing September is coming too soon after the recent rate cut. Markets seem to be pricing in one more rate cut, which is likely to come later in the year.’

Additionally, a prevailing risk-on mood further helped the increasingly risk-sensitive Pound rise against its peers.

Looking ahead, the Pound Euro exchange rate will likely primarily be driven by several UK data releases throughout the week.

Kicking things off on Wednesday, the UK's latest consumer price index (CPI) will take centre stage.

Should inflation cool in line with expectations, GBP exchange rates could face renewed pressure as last-minute BoE rate cut bets intensify.

Shifting to Thursday, the Bank of England will announce its latest interest rate decision, with a widely anticipated interest rate hold potentially propelling Sterling higher.

Meanwhile, for the Euro, Wednesday's finalized Eurozone CPI data will be the main event.

A confirmation that inflation is edging closer to the European Central Bank's (ECB) 2% target could weigh heavily on the common currency.

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TAGS: Pound Euro Forecasts