Pound Euro Weekly Forecast: GBP/EUR Exchange Rate to Remain Volatile?

The Pound Euro (GBP/EUR) exchange rate traded in a wide range last week as the UK’s fuel crisis and differing approaches from the European and UK central banks caused some big movements in the pair.

What’s Been Happening: GBP/EUR Rallies as Fuel Crisis Subsides

The Euro (EUR) fell against the Pound (GBP) at the start of last week after European Central Bank (ECB) President Christine Lagarde reiterated her view that inflationary pressures are transitory.

The single currency then gained on some positive Eurozone data but began to slip at the end of the week as inflation fears rattled EUR investors.

On Thursday German inflation surged to a fresh 28-year high, and on Friday Eurozone inflation hit a 13-year high of 3.4%. With the ECB not expected to raise rates until 2024, worries about overheating inflation dented EUR.

The Pound, meanwhile, started strong as expectations of a Bank of England (BoE) rate hike in early 2022 boosted GBP exchange rates.

However, the UK’s fuel supply crisis weighed heavily on GBP as the week progressed, causing it to slump on Tuesday and hit a two-month low against the Euro on Wednesday.

Sterling managed to recover through Thursday and Friday as the fuel crisis showed signs of stabilising and the UK’s manufacturing PMI beat forecasts.

Three Things to Watch Out for This Week

  1. Final Services PMIs

The final services PMIs for Germany, the Eurozone and the UK could cause some movement in GBP/EUR if the results are revised, as happened with the manufacturing PMIs last week.

  1. UK Economic Concerns

With the supply chain and energy crises weighing heavily on GBP in recent weeks, any new developments – positive or negative – could influence Sterling. 

  1. German Factory Orders

German factory orders are expected to have shrunk by 1.5% in August. If the forecasts are correct, the single currency could lose some support.

GBP/EUR Forecast

A lack of data may leave GBP/EUR vulnerable to losses this week, particularly if the UK’s economic concerns persist. However, with upcoming German data expected to be rather disappointing, we may see the currency pair fluctuate.