Big Week for European Economies, Pound to Euro Rate Retreats

November 18, 2024 - Written by David Woodsmith

STORY LINK Big Week for European Economies, Pound to Euro Rate Retreats

The Pound has continued to lose ground on Monday with the Pound to Euro (GBP/EUR) exchange rate dipping to 20-day lows below 1.1950.

ING expects a firm GBP/EUR tone on near-term central bank divergence; “we see any dovish repricing in BoE expectations coming after a December outsized ECB cut.”

Dollar developments and geo-political developments will continue to have an important impact.

For the Euro area, Ukraine developments will be significant after the US decision to allow Ukraine to launch long-range ATACM missiles against targets in Russia.

Unease over potential escalation in the conflict would have some negative impact on the Euro, especially if there is a spike in energy prices.

There are also important data releases this week in both the UK and Euro-Zone.

According to Danske Bank; “We continue to expect a gradual approach to the cutting cycle by the BoE and EUR/GBP to turn lower the coming quarters.” (GBP/EUR gains towards 1.22).

Inflation and interest rate expectations will be important for the Pound this week.

Danske Bank commented; “This week focus turns to the release of October inflation where headline is expected to increase back above the 2% mark as energy household bills increases.”

The headline inflation rate is forecast to increase to 2.2% for October from 1.7% the previous month.

The core rate is forecast to edge lower to 3.1% from 3.2%.

ING commented; “As usual, markets will be looking almost solely at the services inflation figure, which our economist sees accelerating marginally from 4.9% to 5.0%. However, when stripping out categories that are less relevant for the Bank of England, we see a substantial slowdown to 4.3% in “core services” inflation.

It added; “That would be good news for the BoE, but probably not enough to justify another cut in December.”

Ahead of Wednesday’s inflation data, markets will monitor comments from Bank of England members at the Treasury Secretary Committee on Tuesday.

The main focus will be comments from Governor Bailey, although the views of Taylor will be watched closely given that he has recently been appointed to the committee.

At the end of the week, the latest PMI business confidence data will be released for the UK and Euro-Zone.

This data will have an important impact on sentiment, especially towards the Euro-Zone.

For the Euro area, consensus forecasts are for no change for November with the German manufacturing sector still in deep recession territory.

As far as the UK is concerned, expectations are for slightly stronger figures with the services sector posting a solid advance.

ING commented; “Obviously, soft EZ PMIs can easily prompt a break lower as markets could price in a 50bp ECB cut in December from the current 30bp.”

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TAGS: Pound Euro Forecasts