Pound Euro Weekly Forecast: GBP/EUR Exchange Rate to Decline as Cost-of-Living Squeeze Tightens?

The Pound Euro (GBP/EUR) exchange rate traded flat for most of last week’s session until volatility struck. The pair dropped to a seven-month low before rebounding to a one-week high amid Brexit and Ukraine concerns.

What’s Been Happening: GBP/EUR Bounces off Seven-Month Low

The Pound Euro pair was rangebound for the first half of the week as both currencies faced some poor data releases and domestic concerns.

A drop in UK retail sales and words of warning from Bank of England (BoE) policymaker Michael Saunders weighed on Sterling. Meanwhile, falling Eurozone investor confidence and worries about the EU’s energy security pressured EUR.

GBP/EUR then slipped to a seven-month low amid a risk-off mood and Brexit worries. Boris Johnson restated that the UK was willing to abandon the Northern Ireland protocol, rattling GBP investors.

However, a sharp sell-off in the Euro saw GBP/EUR rebound to a one-week high. After Finland signalled that it could join Nato, Moscow warned that it would retaliate. This spooked EUR investors, who fear an escalation in the Russia-Ukraine conflict.

Three Things to Watch Out for This Week

  1. UK Inflation

Forecasters expect UK inflation to have jumped from 7% to 9.1% in April. With the BoE seemingly near the end of its rate hike cycle, this could hurt Sterling.

  1. ECB Meeting Accounts

Markets have begun pricing in the European Central Bank’s (ECB) first rate rise, expected in July. The minutes from the bank’s last monetary policy meeting could provide further hints at future tightening, thereby affecting the single currency.

  1. UK Retail Sales

Another expected drop in UK retail sales may hurt the Pound on Friday, potentially leaving GBP to end the week on a sour note.

GBP/EUR Forecast

Alongside the above, we have Brexit, the Ukraine crisis and the UK unemployment rate. As a result, it could be another volatile week for the Pound Euro pair. If the UK data points towards a deepening cost-of-living crisis then Sterling could slip overall.

Samuel Birnie

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