The Pound Euro (GBP/EUR) exchange rate is currently trading in a narrow range, with the Euro (EUR) slightly up at the time of writing.
The single currency is supported by Germany’s latest factory orders report, which surprised investors by showing a 3.4% increase, rather than the expected 1% decline.
What’s Been Happening: GBP/EUR Rebounds despite Poor Data
The Euro climbed against the Pound (GBP) at the beginning of last week after some strong data from the Eurozone.
Inflation in the Eurozone soared to a ten-year high of 3% while unemployment fell to 7.6%. This fuelled taper chatter ahead of the European Central Bank’s (ECB) policy meeting this week, sending the Euro to a six-week high against the Pound.
However, a surprise slump in Eurozone retail sales saw the single currency shed the week’s gains.
Meanwhile, downbeat economic data from the UK weighed on the Pound, including a fall in consumer credit and slowing business activity.
Worries over the UK’s supply chain crisis also dented Sterling, though it managed to rebound at the end of the week without any clear catalyst for the movement.
Three Things to Watch Out for This Week
- ZEW Economic Sentiment Indexes
Investor confidence levels in Germany and the Eurozone are expected to drop to their worst levels since April 2020, which could weigh on the Euro.
- ECB Interest Rate Decision
The recent jump to 3% inflation has created debate around the ECB’s next moves. Any hawkish developments could boost EUR exchange rates.
- UK GDP Three-Month Average
GDP growth is expected to slow from 4.8% to 3.8% in July as supply chain disruption and rising Covid cases started to stifle the UK economy. As such, GBP rates may soften.
With UK data thin on the ground until Friday, Sterling could be vulnerable to losses throughout the week.
However, this means the Pound Euro exchange rate will likely hinge on the Eurozone data, particularly the ZEW reports and the ECB rate decision. If these prove detrimental for the single currency then GBP/EUR could strengthen.