The Pound Euro (GBP/EUR) exchange rate bounced off a three-month low last week. Russia-Ukraine peace talks appeared to make progress, thereby boosting the Euro (EUR), before the mood soured.
So far today, GBP/EUR has wavered after rising overnight. The single currency seems caught between worrying news from Ukraine and better-than-expected German trade data. Meanwhile, GBP investors await a speech from Bank of England (BoE) Governor Andrew Bailey.
What’s Been Happening: GBP/EUR Bounces off Three-Month Low
The Euro strengthened early last week as Russia-Ukraine peace talks resumed. Following discussions, Russia said it would withdraw troops from Kyiv and Chernihiv to foster ‘mutual trust’ and create the conditions for a peace deal.
This optimism boosted EUR through much of the week. However, on Thursday it began to fade as Russian military aggression continued.
In addition, Vladimir Putin warned that Russia would cut gas supplies to ‘unfriendly’ clients if they did not pay in Russian Rubles (RUB) – a demand that European buyers have rejected. As a result, EUR lost some of its gains.
Meanwhile, the Pound (GBP) tumbled early in the week after BoE Governor Bailey warned that UK households face a ‘historic shock to real incomes’, which could stifle the country’s economy.
On Thursday, an upward revision to the UK’s final GDP growth rate for 2021 helped Sterling recover as the single currency began to weaken.
However, GBP/EUR failed to rise further on ‘Bleak Friday’. The UK’s energy price cap rose by 54%, ratcheting up the country’s cost-of-living squeeze.
Three Things to Watch Out for This Week
- Russia-Ukraine War
As Russia’s invasion rages on, sentiment shifts between hopes for peace and despair at the ongoing violence. The changing market mood will continue to affect GBP/EUR, with negative news likely denting the Euro.
- UK Cost-of-Living Crisis
With the UK’s income squeeze intensifying last Friday, it could remain a headwind for GBP through this week’s trade.
- ECB Meeting Accounts
The European Central Bank (ECB) surprised markets by speeding up its tapering process last month. EUR investors will be eager to read the meeting minutes, hoping to glean insights into what policymakers might do at the bank’s next meeting.
GBP/EUR Forecast
High-impact data is fairly thin on the ground this week. As a result, GBP/EUR could trade primarily on news from the Russia-Ukraine crisis, so we might see some volatility.