Pound Euro Weekly Forecast: GBP/EUR Exchange Rate to Firm on Europe’s Covid Woes?

The Pound Euro (GBP/EUR) exchange rate surged to a fresh 21-month high last week as strong UK jobs data and a higher-than-expected CPI boosted bets for a Bank of England (BoE) rate hike next month. 

What’s Been Happening: GBP/EUR Soars on Rate Hike Bets 

The Euro (EUR) got off to a rocky start last week after the Eurozone’s trade surplus for September printed at just €7.3bn, compared to €24.1bn in the same month last year. 

Growing tensions on the Poland-Belarus border and dovish comments from the European Central Bank (ECB) President Christine Lagarde weighed on the single currency throughout the week. 

EUR managed to recoup some losses on Thursday thanks to a technical correction. However, rising European Covid cases and a new national lockdown in Austria saw the Euro end the week on a bad note. 

Meanwhile, the Pound surged as markets priced in a December BoE rate hike. 

Hawkish comments from BoE Governor Andrew Bailey on Monday were followed by strong post-furlough jobs data and a higher-than-expected UK CPI, with inflation jumping to a ten-year high of 4.2%. 

Mixed UK data on Friday caused GBP/EUR to waver, though it firmed overall. Retail sales recovered but public borrowing exceeded expectations as rising inflation pushes up the cost of servicing government debts. 

Three Things to Watch Out for This Week 

  1. Markit Flash PMIs 

Economists expect business activity to ease in both the Eurozone and the UK, but GBP may firm as UK data looks likely to come out the strongest of the two. 

  1. Central Bank Speakers 

Speeches from ECB and BoE officials, particularly Lagarde and Bailey, could boost the Pound Euro pair if they are broadly dovish and hawkish, respectively. 

  1. European Covid News 

If Covid cases continue to soar and more countries impose restrictions then the single currency could face significant selling pressure. 

GBP/EUR Forecast 

This week, GBP/EUR is likely to remain strong. Markets expect UK data to outperform Eurozone data and mainland Europe’s Covid situation looks like it will worsen. 

Samuel Birnie

Contact Samuel Birnie