Pound Euro Weekly Forecast: Central Bank Speakers in Focus

The Pound Euro (GBP/EUR) exchange rate has continued last week’s volatility so far this morning. An upbeat mood supports Sterling, although more industrial action in the UK (criminal barristers are striking today) offsets the upside.

What’s Been Happening: GBP/EUR Recovers after PMI Surveys

After wavering through the first part of the week, the Euro (EUR) rose on Wednesday. The upside came as experts from the European Central Bank (ECB) forecast that the Eurozone economy ‘remains far from a stagflation scenario’.

The Euro quickly shed these gains, however, after some dire Eurozone PMIs. In addition, gas shortage fears in Germany added to the downside.

At the same time, the Pound (GBP) stumbled earlier in the week as traders feared the economic impact of the UK train strikes.

The UK’s inflation rate reading saw GBP/EUR zigzag lower as signs of less persistent inflation caused markets to pare back Bank of England (BoE) rate rise bets.

Sterling then recovered against a weakening Euro as the UK’s services PMI unexpectedly held steady.

At the end of the week, both currencies wavered. The Euro’s negative correlation to a softer US Dollar (USD) helped offset some poor German data. Meanwhile, UK retail sales contracted, but by less than expected.

Three Things to Watch Out for This Week

  1. Central Bank Speeches

Speeches from officials at the BoE and ECB – including Governor Andrew Bailey and President Christine Lagarde – could cause significant movement this week.

  1. Eurozone Inflation

Economists expect the latest flash inflation rate for the Eurozone to edge up to a new record high. An even hotter reading could fuel rate rise bets, boosting EUR.

  1. UK Politics

Amid a lack of notable data, domestic UK news may dominate GBP movement. Northern Ireland protocol concerns, strike action, or challenges to Boris Johnson’s premiership could weigh on GBP.

Pound Euro Forecast

This week we may see some more big swings in the Pound Euro pair. If the uncertainty in the UK political landscape persists, and if traders price in more hawkish action from the ECB, then GBP/EUR could fall overall.

Samuel Birnie

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