Pound Euro Weekly Forecast: Could GBP/EUR Climb Even Higher?

The Pound Euro (GBP/EUR) exchange rate climbed to a 20-month high last week, as the increasing likelihood of a Bank of England (BoE) rate hike this year supported Sterling.

The BoE’s hawkish approach contrasts that of the European Central Bank (ECB), allowing the Pound to make significant gains.

What’s Been Happening: GBP/EUR Soars on Diverging Central Bank Policy

The Euro (EUR) initially firmed against a weaker Pound, despite a lack of Eurozone data.

The single currency then started losing ground as Germany’s ZEW economic sentiment index for October dropped more than expected, hitting its lowest level since March 2020.

Later in the week, dovish comments from multiple ECB officials pushed the Euro down even further. ECB President Christine Lagarde said it was ‘crucial that policy support was not withdrawn prematurely’, while her colleagues echoed her cautious sentiment.

Meanwhile, the Pound started on the back foot as concerns over the UK’s economic recovery weighed on GBP, despite hawkish comments from the BoE’s Michael Saunders over the weekend.

Strong jobs data and an improvement in GDP growth supported the Pound as the week went on, further fuelling speculation of a BoE rate hike in December of this year.

Brexit optimism then added to the upside, as the UK and EU resumed negotiations over the Northern Ireland protocol.

Three Things to Watch Out for This Week

  1. UK CPI

UK inflation is expected to have held at a nine-year high of 3.2% last month. A strong reading could boost Sterling by increasing the probability of an interest rate rise.

  1. UK Retail Sales

After unexpectedly contracting by 0.9% in August, UK retail sales are forecast to rise by 0.4% in September. Any more surprises could drive significant movement.

  1. Flash PMIs

Both GBP and EUR investors will be eyeing the flash PMIs on Friday. Any unexpected results, as we had last month, will likely impact the GBP/EUR exchange rate.

GBP/EUR Forecast

If UK data remains positive, and the central banks maintain their approaches to monetary policy, GBP/EUR could stay strong this week.

Samuel Birnie

Contact Samuel Birnie