The Pound Euro (GBP/EUR) exchange rate rose to a two-week high last week as EUR investors remained anxious over the Russia-Ukraine crisis.
So far this morning, GBP/EUR is climbing. February’s flash PMIs for both the UK and the Eurozone showed strong recoveries in service-sector activity. However, the potential for a Russian invasion of Ukraine continues to weigh on the Euro (EUR).
What’s Been Happening: GBP/EUR Climbs amid Fears of War in Ukraine
The Euro started the week on the defensive as investors feared a Russian invasion of Ukraine. If war breaks out it could stifle the Eurozone’s economic growth and drive energy prices even higher.
A brief respite came as Vladimir Putin claimed he was withdrawing troops, allowing EUR to edge higher. However, it soon became clear that Russia was in fact increasing its military presence in the area.
Tensions rose amid clashes in eastern Ukraine. Russian-backed separatists and the Ukrainian military each accused the other of artillery attacks, which analyst feared Russia could use as a pretext for invasion.
Meanwhile, the Pound (GBP) slipped on Tuesday as the latest UK jobs data showed that wage growth is lagging behind inflation. This added to concerns about the UK’s cost-of-living crisis.
An unexpected rise in UK inflation helped Sterling recover. Inflation edged up to 5.5% in January, increasing the likelihood of steeper rate rises from the Bank of England (BoE).
Finally, a stronger-than-expected recovery in UK retail sales boosted GBP/EUR on Friday. However, economists warned that the squeeze on income could dent consumer spending as the year goes on, limiting Sterling’s gains.
Three Things to Watch Out for This Week
- Russia-Ukraine Crisis
The situation in Ukraine remains tense and is constantly developing. It will likely continue to affect EUR this week, with negative headlines weighing on the Euro.
- German Business Climate
Economists expect the Ifo business climate indicator for Germany to rise again this month, which could provide some support for the single currency.
- Central Bank Speeches
There are a dozen speeches this week from policymakers at both the BoE and the European Central Bank (ECB). Any hawkish comments could support the respective bank’s currency.
GBP/EUR Forecast
This week, the GBP/EUR exchange rate may hinge on how the Russia-Ukraine crisis unfolds. If things deteriorate, the single currency could slump.