The Pound to Euro (GBP/EUR) exchange rate looks to be on the path towards recovery this morning, after a market correction saw Sterling plunge from an 11-month high last week.
What’s Been Happening: Pound Undermined by End of Month Flows
The Pound soared through the first part of last week’s session, with Sterling sentiment being buoyed by reopening hopes, as Boris Johnson unveiled his roadmap of how to exit lockdown in England.
The expectation that the UK will be the first major economy to completely reopen, as well as a stronger-than-expected bump in domestic wage growth in December, helped propel the GBP/EUR exchange rate to a new 11-month high.
However, the Pound then came crashing back to earth in the second half of the week, as it fell victim to some profit taking in end of month trade.
The Euro, meanwhile, was unable to counter the Pound’s strength through the first half of last week’s session, amidst ongoing concerns over the EU’s vaccine rollout.
But the single currency took full advantage of the pullback in the Pound later in the session, thanks to some upbeat EUR data.
Three Things to Watch Out for This Week
- UK Budget
The main catalyst of movement in the Pound this week will undoubtedly be the publication of Chancellor Rishi Sunak’s 2021 Budget. Will more fiscal support from the Chancellor help the Pound to resume its bullish run this week?
- Eurozone Inflation
In the spotlight for EUR investors this week we have the Eurozone’s consumer price index, where another acceleration of inflation is likely to reflect well on the Euro.
- Eurozone Retail Sales
Also influencing EUR exchange rates this week will be the latest Eurozone retail sales figures. Economists are forecasting a sharp slump in sales growth in January, which may apply some pressure to the single currency in the second half of the week.
GBP/EUR Forecast
The UK’s Budget provides a good opportunity for the GBP/EUR exchange rate to rally this week, assuming Chancellor Rishi Sunak remains committed to protecting jobs and opts to limit any tax hikes.