The Pound Euro (GBP/EUR) exchange rate rose to an 11-day high last week as Russian atrocities in Bucha dashed peace talk hopes. However, Sterling was unable to hold all of its gains amid UK economic concerns.
So far this week, the Pound (GBP) is heading lower against the Euro (EUR). The latest UK GDP data shows that the UK economy slowed more than expected in February, with economists worried that growth will remain weak throughout 2022.
What’s Been Happening: GBP/EUR Retreats from 11-Day High amid Economic Headwinds
Evidence that Russian soldiers had deliberately killed hundreds of Ukrainian citizens dominated headlines last week. The horrifying news shattered hopes of successful peace talks and led to another round of EU sanctions on Russia, which weighed heavily on the Euro.
Mid-week, EUR attracted some dip-buying. This, paired with some positive Eurozone data, initially prevented further losses. But, the Euro’s negative correlation to a strengthening US Dollar (USD) saw EUR/GBP slip to an 11-day low.
The single currency regained some ground on Friday, however. As Russian forces withdrew from northern Ukraine, some refugees returned home. Amid these developments, a slightly more upbeat mood boosted EUR.
Meanwhile, the Pound rose early in the week, boosted by an ‘exceptionally strong’ UK services PMI.
A lack of UK data then left GBP without a clear direction.
On Friday, Sterling fell sharply as severe disruption hit the UK travel industry. In addition, a new YouGov survey revealed that consumer confidence dropped to a ten-year low.
Three Things to Watch Out for This Week
- ZEW Economic Sentiment Index
Economic morale in Germany is set to slump for a second consecutive month. This would likely dent EUR.
- UK Inflation
Economists expect UK inflation to have hit a fresh 30-year high of 6.7% last month. Such a reading could add to fears about the UK’s cost-of-living crisis.
- ECB Interest Rate Decision
Amid the ongoing uncertainty of the Ukraine war, it’s unlikely the European Central Bank (ECB) will announce any big decisions this week. Still, EUR investors will be analysing the forward guidance and trying to divine when the bank may raise rates.
GBP/EUR Forecast
With a handful of high-impact events, as well as the war in Ukraine, the Pound Euro pair could experience some volatility this week.