The Pound Euro (GBP/EUR) exchange rate slumped last week, tumbling by 2.5% from a near six-year high to a one-month low.
The movement came as the Euro (EUR) rallied, with markets hoping for diplomatic progress in the Russia-Ukraine war.
What’s Been Happening: GBP/EUR Tumbles by 2.5%
After touching fresh multi-year lows in overnight trade, the Euro began climbing on Monday morning. A pullback in oil prices helped to ease fears about soaring energy costs in the Eurozone.
EUR then firmed as European markets grew more optimistic. The EU unveiled plans to address the economic impact of the Russia-Ukraine war. Meanwhile, a diplomatic resolution to the conflict appeared possible.
However, the mood soured at the end of the week, ending EUR’s rally. Even the European Central Bank’s (ECB) hawkish surprise of faster tapering failed to push the single currency higher.
As for the Pound (GBP), a lack of UK economic data saw Sterling slip against a strengthening Euro through most of the week.
However, stronger-than-expected GDP data boosted GBP on Friday. The UK economy grew by 0.8% in January, above forecasts of 0.2%, as the country rebounded from the disruption caused by Omicron.
Three Things to Watch Out for This Week
- Russia-Ukraine War
The ongoing invasion of Ukraine continues to dominate markets. If this week brings diplomatic progress, EUR could gain against GBP.
- ZEW Economic Sentiment Index
Economic sentiment scores for Germany and the wider Eurozone are forecast to slump as the Russia-Ukraine war weighs on investor morale. This could drag the Euro lower.
- BoE Interest Rate Decision
Markets expect the Bank of England (BoE) to enact its third consecutive rate hike on Thursday. While traders have priced in the move for some time, it could still boost Sterling.
GBP/EUR Forecast
We may see GBP/EUR strengthen this week. Sterling is set for strong data and a BoE rate hike while economic reports from the Eurozone are likely to undermine EUR. However, the Russia-Ukraine war will continue to infuse the currency pair with volatility.