Even as tensions continued to escalate over Catalonia this failed to keep the Pound Euro exchange rate on a bullish footing, with markets still confident that independence will not come to pass.
This limited the bearishness of the single currency, even though a sense of uncertainty is still hanging over the Spanish economy and the wider Eurozone.
A solid uptick in German retail sales on the year also helped to limit the downside potential of the Euro on Monday, with consumers continuing to show signs of confidence.
However, the GBP EUR exchange rate could find a fresh rallying point on the back of October’s German consumer price index data.
If inflationary pressure within the Eurozone’s powerhouse economy shows signs of falling back then the mood towards the single currency could sour significantly.
As the European Central Bank (ECB) has expressed scepticism over the implications of the recent increase in domestic inflation any weakening could weigh heavily on EUR exchange rates.
With the ECB already looking set to maintain its more dovish monetary policy bias for the foreseeable future any signs of softening inflation could give policymakers greater cause for caution.
On the other hand, if German inflation betters expectations this may encourage the GBP EUR exchange rate to cede more of its gains.
Pound May Struggle to Capitalise on BoE Interest Rate Hike
Although growth in UK consumer credit eased somewhat in September this is unlikely to alter the outlook for Thursday’s Bank of England (BoE) policy meeting.
As policymakers have expressed some concerns over the increasing reliance on borrowing amongst UK households this dip could go some way towards reassuring the BoE that an imminent interest rate hike is warranted.
Still, this softening suggests that confidence within the economy is faltering somewhat as the wage squeeze continues to intensify, indicating that the domestic outlook is still rather bearish at this juncture.
As a result, Sterling may struggle to make any significant gains on the back of a BoE interest rate hike, as analysts at ANZ noted:
‘Is this ‘one-and-done’ or the beginning of a tightening cycle? Either way, the outlook for the UK remains too uncertain for the GBP to be bullish and, as such, we would recommend selling the Pound on any rally.’
However, if the Monetary Policy Committee (MPC) surprises markets and fails to deliver the expected interest rate hike this could see the GBP EUR exchange rate slump sharply.
Greater signs of division amongst policymakers are likely to limit the upside potential of the Pound in the near term, regardless of Thursday’s decision, reducing the odds of interest rates rising further in the coming months.
Current GBP EUR Interbank Exchange Rates
At the time of writing, the Pound Euro exchange rate was trending narrowly at 1.1309. Meanwhile, the Euro Pound exchange rate was trending lower in the region of 0.8841.
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