The Pound Euro (GBP/EUR) exchange rate climbed to a five-week high last week as central bank policy divergence supported Sterling and dented the single currency.
What’s Been Happening: GBP/EUR Hits Five-Week High on UK Inflation and Dovish ECB
The Euro (EUR) started the week on the defensive, with a downbeat mood around the Ukraine crisis weighing on EUR.
Another drop in German investor morale added to EUR’s downside. Although the ZEW economic sentiment index beat forecasts, it still fell to its lowest level since March 2020.
At the end of the week, the European Central Bank’s (ECB) interest rate decision disappointed EUR investors. The ECB chose to stay its current course, putting it further at odds with other central banks that are aggressively raising interest rates.
Meanwhile, the Pound (GBP) edged higher early in the week, despite a sharper-than-expected slowdown in UK GDP. The upside came courtesy of rising UK government bond yields. Investors ignored recent dovish rhetoric from the Bank of England (BoE) and bet on another rate rise next month.
Mixed UK employment data caused some turbulence on Tuesday, although the Pound was able to rise against a weaker Euro.
The UK’s CPI then boosted Sterling on Wednesday, exceeding forecasts to jump to a fresh 30-year high of 7%. This further fuelled rate hike bets, although cost-of-living concerns may have limited GBP’s gains.
Three Things to Watch Out for This Week
- Eurozone Balance of Trade
Economists expect the Eurozone trade deficit to widen once again amid the surging cost of energy imports. This could weigh on EUR.
- UK Retail Sales
Another expected contraction in UK retail sales could hurt the Pound early on Friday morning.
- PMIs
April’s flash PMIs for both the UK and the Eurozone are forecast to show declining business activity. Any surprise results could cause some movement.
Pound Euro Forecast
Alongside these high-impact releases, we also have BoE speeches and possible volatility from the Russia-Ukraine war. Will Sterling be able to hold its gains or will downbeat data at the end of the week see GBP/EUR slip?