The Pound Euro (GBP/EUR) exchange rate traded in a wide range last week, hitting a 20-month high just shy of €1.19 before dropping almost a cent to a two-week low.
This morning, GBP/EUR has slipped, despite an unexpected contraction in German retail sales.
What’s Been Happening: GBP/EUR Volatile on Budget, Brexit and ECB
The Euro (EUR) slipped at the start of the week after German business sentiment fell for the fourth consecutive month.
Mid-week, an unexpected increase in German consumer confidence boosted EUR, but the score was skewed and the Euro lost some gains.
The single currency then surged to a two-week high against Sterling on Thursday as traders priced in an earlier rate hike from the European Central Bank (ECB), despite the ECB maintaining its dovish stance during its policy meeting.
However, the Euro relinquished these gains on Friday as it was dented by its negative correlation to a stronger US Dollar (USD).
Meanwhile, the Pound gained against the Euro at the beginning of the week but began to lose ground as the UK unveiled its autumn budget.
Brexit concerns weighed on Sterling through the latter part of the week. Tensions between the UK and France escalated, prompting fresh fears of a trade war.
Nevertheless, GBP/EUR managed to strengthen thanks to the Euro’s weakness.
Three Things to Watch Out for This Week
- Eurozone Unemployment Rate
The single currency could gain some support on Wednesday as unemployment in the Eurozone is forecast to fall again.
- BoE Interest Rate Decision
City traders expect a rate hike at this week’s meeting but many economists aren’t so sure. Either way, the Bank of England’s (BoE) decision will likely have a significant impact on GBP exchange rates.
- Eurozone Retail Sales
Consensus expectations see Eurozone retail sales easing from 0.3% growth in August to 0.2% growth in September, which may worry EUR investors.
GBP/EUR Forecast
Markets may be disappointed if the BoE doesn’t raise rates, so GBP/EUR might slip. However, nuances in the bank’s policy, voting split and forward guidance will most likely determine how the Pound Euro rate moves.