The Pound Euro (GBP/EUR) exchange rate was turbulent last week as markets reacted to Russia’s full-scale invasion of Ukraine.
As this week’s trade began, GBP/EUR jumped higher. Tougher sanctions over the weekend have hit the Euro (EUR) hard, as they could slow economic growth in the Eurozone.
What’s Been Happening: GBP/EUR Slides as Russia Invades Ukraine
The Euro found itself under pressure early in the week, despite the Eurozone’s strong service-sector PMI, as analysts warned that Russia was preparing to invade Ukraine.
Tuesday saw the single currency rebound strongly after Russia’s initial incursion into eastern Ukraine dented EUR overnight. The upside came thanks to a stellar result from Germany’s business climate index and EUR’s negative correlation to a weakening US Dollar (USD).
Trade was then choppy for the rest of the week as Russia fully invaded Ukraine. As a safe-haven currency, the Euro managed to gain against the riskier Pound (GBP), even as it tumbled against its other peers.
Meanwhile, Sterling initially strengthened last week as the UK’s services PMI smashed forecasts to hit an eight-month high.
However, as the week went on, comments from Bank of England (BoE) officials began to weigh on the Pound. Policymakers poured cold water on expectations of an aggressive tightening cycle, saying that ‘modest’ action was more likely.
Russia’s invasion of Ukraine saw GBP/EUR slump at the end of the week. Market anxiety triggered a selloff in the Pound as it’s seen as one of Europe’s more risk-sensitive currencies.
Three Things to Watch Out for This Week
- Russia-Ukraine War
The ongoing invasion will continue to impact currency markets this week, likely causing volatility.
- Eurozone CPI
Economists expect Eurozone inflation to edge up to a new record high on Wednesday. A high reading could boost the Euro, although the Ukraine crisis casts doubts on the European Central Bank’s (ECB) path to tightening policy.
- BoE Speeches
Speeches from BoE policymakers could influence Sterling this week. Will they further rein in rate hike bets following Russia’s invasion?
GBP/EUR Forecast
The GBP/EUR pair could remain volatile this week amid the uncertainty of the Russia-Ukraine war. A number of factors could affect the Pound Euro pair, including risk appetite, the impact on the Eurozone economy and how the crisis influences central bank policy.