The Pound Euro (GBP/EUR) exchange rate fell to a three-week low last week as Bank of England (BoE) policymakers poured cold water on the chances of a December rate hike.
Sterling has regaining ground this morning, however, after German factory orders slumped by 6.9%.
What’s Been Happening: GBP/EUR Drops on Dampened Rate Hike Bets
The Euro (EUR) strengthened against the Pound (GBP) throughout the week thanks to positive Eurozone data, including the bloc’s falling unemployment rate.
However, strength in the US Dollar (USD) saw the single currency slip on Thursday due to the negative correlation between EUR and USD.
On Friday, the final composite PMI showed that growth had accelerated in the Eurozone, thereby boosting the Euro.
Meanwhile, the Pound lost its advantage against the Euro as the Omicron variant dampened rate hike bets. Throughout the week, dovish comments from the BoE’s Andrew Bailey and Catherine Mann weighed on Sterling.
The Pound strengthened on Thursday amid news of almost £6bn investment in the UK’s vaccine-making industry.
But further dovish comments undermined Sterling. Michael Saunders, one of the more hawkish policymakers at the BoE, suggested that Omicron could delay plans to hike rates.
Three Things to Watch Out for This Week
- Germany’s ZEW Economic Sentiment Index
Economic sentiment in Europe’s biggest economy is forecast to fall back to one of its lowest levels since the pandemic hit. As a result, EUR could slip.
- Germany’s Balance of Trade
The Euro could then get a boost as Germany’s trade surplus is expected to have widened in October. However, with German data repeatedly missing forecasts in recent months, EUR investors may be disappointed.
- UK GDP
Finally, Sterling may find support from the UK’s latest GDP data. Economists expect month-on-month GDP to have grown by 0.5%.
GBP/EUR Forecast
Sterling may struggle for direction through most of the week as there’s very little UK data, but the GDP report on Friday could see GBP/EUR end on a high. In addition, if Eurozone data this week is poor, the single currency could fall.