The Pound Euro (GBP/EUR) exchange rate rose to a near six-year high last week as the single currency remains in freefall due to the Russia-Ukraine crisis.
GBP/EUR hit a fresh multi-year high of €1.2174 last night before retreating lower. The pair has wavered so far during the European session but remains up from last week’s levels.
What’s Been Happening: GBP/EUR Hits Highest Level since 2016
The Euro (EUR) fell sharply as forex markets opened last week in response to the crippling economic sanctions announced over the weekend.
Despite peace talks between the two sides, Russia’s attack on Ukraine intensified through the week. Analysts expect the war to dent economic growth in the Eurozone, which in turn could postpone any plans by the European Central Bank (ECB) to raise interest rates.
As a result, the Euro plummeted to multi-year lows throughout the week’s trade.
Meanwhile, the Pound (GBP) was also under pressure from the Russia-Ukraine war, but managed to outperform the Euro.
A stronger-than-forecast final manufacturing PMI may have boosted Sterling, with the report unexpectedly hitting a seven-month high.
Also underpinning the Pound were expectations that the Bank of England (BoE) will still raise rates at this month’s meeting. With the ECB potentially holding back, this policy divergence supported GBP/EUR.
Three Things to Watch Out for This Week
- Russia-Ukraine War
The conflict in Ukraine will likely continue to cause significant movement in GBP/EUR this week, with analysts expecting attacks to intensify.
- ECB Decision
EUR investors will be carefully watching to see how the ECB responds to the Russia-Ukraine war. If forward guidance takes a more dovish tilt, the Euro could tumble.
- UK GDP
Economists expect UK GDP to have stalled in January, which could weigh on Sterling.
GBP/EUR Forecast
The Euro will likely remain offered this week amid the Ukraine war and expectations of a dovish ECB. The central bank faces a policy nightmare, as the conflict will likely dent growth while pushing inflation even higher. As a result, there’s a lot of uncertainty surrounding how the ECB will act, and GBP/EUR could be particularly sensitive to the bank’s decision and forward guidance.