Pound Euro (GBP/EUR) Weekly Forecast: UK CPI and Retail Sales to Cause more Spikes and Slumps?

The Pound Euro (GBP/EUR) exchange rate was volatile last week, tumbling to a one-year low before rebounding on some hawkish forward guidance from the Bank of England (BoE).

What’s Been Happening: GBP/EUR Bounces off 16-Month Low amid BoE Decision

The Euro (EUR) was fairly muted early in the week, though it was able to gain against a weakening Pound (GBP).

On Wednesday morning, EUR hit a 16-month high against the beleaguered GBP. The European Central Bank (ECB) convened for an impromptu meeting to address fragmentation in the Eurozone. However, the outcome of the meeting left investors unimpressed and the single currency slumped.

The Euro then wavered in the latter part of the week, though it managed to recoup some of its losses.

Meanwhile, the Pound tumbled through the first part of the week. UK GDP unexpectedly contracted, the unemployment rate unexpectedly rose, and Brexit woes rattled investors.

Sterling then surged as the Bank of England (BoE) left the door open to 50-bps rate rises in the future, saying it would ‘act forcefully’ if necessary to contain inflation.

GBP pared its gains on Friday, however. Global recession fears weighed on the market mood, which in turn dented the risk-sensitive UK currency.

Three Things to Watch Out for This Week

  1. UK CPI

Forecasters see UK inflation edging up from 9% to 9.1% in May. If the CPI comes in hotter than expected, bets on more hawkish action from the BoE could boost Sterling.

  1. Flash PMIs

The UK and Eurozone flash PMIs for June are out on Thursday. Markets will be eager to learn just how much the current economic climate is denting business activity.

  1. UK Retail Sales

Economists expect UK retail sales to have shrunk by 0.9% last month. Such a decline could hurt GBP.

Pound Euro Forecast

Alongside this high-impact data, the UK rail strikes could affect Pound Sterling and Russia-EU tensions may impact EUR.

This week could bring more big swings in the Pound Euro exchange rate. However, with a sharp drop in UK sales looming, GBP could end the week on a sour note.

Samuel Birnie

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