The Pound Euro (GBP/EUR) exchange rate struck a one-year high during last week’s session as the single currency was compromised by lacklustre data and a dovish European Central Bank (ECB).
What’s Been Happening: Pound Euro Lifted by Disappointing EUR Data
The Euro spent most of last week on the defensive, with its initial losses being driven by its negative correlation with the US Dollar, as well as data showing a surprise decline in German industrial production in January.
The Euro remained offered on Tuesday following the publication of Eurozone’s latest GDP estimate, which reported the contraction in the last quarter of 2020 was larger than previously thought, with growth being revised down from –0.6% to –0.7%.
The single currency then faced further pressure in the second half of the week after the ECB pledged to ‘significantly’ accelerate its bond-buying programme, following its latest policy meeting.
Meanwhile, the Pound was well positioned to take advantage of the Euro’s weakness last week, being supported by some upbeat comments from Bank of England (BoE) Governor Andrew Bailey, as well as optimism over the UK’s vaccination programme.
However, Sterling was ultimately forced to retreat from its best levels at the end of the session, after GBP investors were unnerved by the UK’s latest trade figures, which revealed UK exports to the EU plunged a record 40% in January.
Three Things to Watch Out for This Week
- BoE Rate Decision
The BoE will conclude its latest policy meeting this week. No policy changes are expected from the bank this month, but could some hawkish forward guidance help to lift the Pound?
- German ZEW Survey
In the spotlight for EUR investors at the start of this week will be the latest ZEW surveys from Germany, with the Euro potentially finding some support if economic sentiment continued to improve this month.
- Coronavirus Developments
Also influencing the GBP/EUR exchange rate will be the latest coronavirus statistics from the UK and Eurozone, with the pairing potentially advancing amidst concerns that cases are starting to rise again in certain parts of the EU.
Pound Euro Forecast
The main catalyst of movement in the Pound Euro exchange rate this week is likely to be Thursday’s BoE rate decision, which could propel Sterling higher if the bank is broadly optimistic in its outlook.