The Pound Euro (GBP/EUR) exchange rate rebounded from a three-week low last week on the back of some hawkish remarks from a Bank of England (BoE) policymaker.
What’s Been Happening: Pound Euro Jumps on BoE Remarks
The Pound opened last week’s session on the back foot, with renewed Brexit friction over the Northern Ireland protocol between the UK and EU undermining the GBP/EUR exchange rate.
Sterling sentiment was also sapped in the first half of the week by concerns over a continued rise in new coronavirus cases in the UK.
But the Pound then mounted a recovery in the latter half of the week, in response to comments by BoE policymaker Gertjan Vlieghe, who hinted the bank could start hiking interest rates from early 2022, so long as the end of the furlough scheme doesn’t trigger a sharp rise in unemployment.
The euro, meanwhile, had a strong start last week, with the single currency being bolstered by the Eurozone’s improving economic outlook and a surprisingly strong uptick in German business sentiment in May.
However, the single currency was unable to sustain these gains as it fell victim to some profit taking and dovish comments from a European Central Bank (ECB) policymaker in the second half of the week.
Three Things to Watch Out for This Week
- UK PMIs
A key catalyst of movement in the GBP/EUR exchange rate this week may be the UK’s finalised PMI figures for May, as the reopening of more of the economy in the middle of the month could result in activity in the service sector being revised higher.
- Eurozone Inflation
In focus for EUR investors this week will be the Eurozone’s consumer price index released this morning. The headline inflation rate rose and came in above forecasts at 2% in May, hitting the ECB’s target rate, but will the ECB’s current dovish bias limit any upside in the Euro?
- Eurozone Retail Sales
Also influencing EUR exchange rates will be the Eurozone’s latest retail sales release, with the single currency potentially facing headwinds at the end of the week if sales growth slowed as expected in April.
Pound Euro Forecast
Looking ahead, the Pound Euro exchange rate could trade higher again this week if the latest Eurozone data releases fail to extend much support to the single currency.