Euro little changed against Pound Sterling as ECB, BoE outlooks stay in focus

The Euro and Pound Sterling exchange rate remained relatively stable on Friday, following a period of minimal movement throughout the week. Traders exhibited a subdued response to the release of second-quarter Gross Domestic Product (GDP) data from both the Eurozone and the United Kingdom (UK). The Eurozone economy expanded by 0.4% in the second quarter, according to Eurostat's revised estimate, mirroring the initial estimate and marking an improvement from a non-growth scenario in the previous quarter.

On an annual basis, GDP growth accelerated to 1.0% from a previously revised 0.5%. Concurrently, the UK economy also grew by 0.4% in the second quarter, aligning with expectations, although growth slowed compared to the 0.6% expansion in the first quarter. Annual growth for the UK increased to 1.2% from a revised 0.9%, exceeding the 1.1% forecast.

Despite these economic updates, the Euro against the Pound Sterling is anticipated to conclude the week in a declining position, potentially driven by profit-taking after three successive weekly gains. Market attention remains centered on the impact of high oil prices on inflation and the monetary policy decisions of the European Central Bank (ECB) and the Bank of England (BoE).

The consensus among analysts is that a September interest rate hike from the ECB is expected, marking the second increase of the year. Nordea Bank anticipates three more 25 basis point hikes, leading the deposit rate to 3%, although they have adjusted their forecast to quarterly hikes instead of consecutive ones. The ECB's potential rate hike is contingent upon geopolitical developments, with a swift and lasting resolution in the Middle East potentially curbing the pressure for further rate hikes, while persistent escalation and prolonged energy market disruptions could expedite and possibly intensify rate increases.

Conversely, the BoE is projected to maintain interest rates steady, with the transmission of higher energy prices still limited. The UK's Consumer Price Index (CPI) report, released by the Office for National Statistics, will offer fresh insights into inflation. The Monthly Movement figure gauges consumer price inflation, representing the rate at which the prices of goods and services purchased by households change, serving as a benchmark for the government's inflation targets.