The Pound Euro (GBP/EUR) exchange rate fluctuated again last week, particularly after the European Central Bank (ECB) surprised markets by raising interest rates at a faster-than-expected pace.
What’s Been Happening: GBP/EUR Exchange Rate Shaken by ECB Decision
The Pound Euro exchange rate got off to a strong start last week, with Sterling strengthening amid speculation the Bank of England (BoE) may accelerate its current tightening cycle.
However Euro then almost immediately bounced back amid reports the ECB might be considering a 50bps interest rate hike.
Meanwhile Sterling stumbled in the middle of the week as the latest UK wage growth and inflation figures reignited concerns over the UK’s cost of living crisis.
The second half of the week then saw the ECB announce its latest interest rate decision. The Euro spiked as the bank shocked markets with a 50bps hike, but quickly relinquished these gains in response to some dovish comments from ECB President Christine Lagarde.
The Euro then extended this decline at the end of the week after the latest Eurozone PMI’s reported the bloc’s manufacturing sector contracted this month.
Meanwhile the Pound traded with modest gains on Friday, after some surprisingly robust UK PMI figures helped to offset another slump in domestic retail sales.
Three Things to Watch Out for This Week
- Eurozone GDP
The spotlight this week is likely to be on the Eurozone’s latest GDP figures. The Euro is likely to face significant pressure if growth in the second quarter all but stalled as expected.
- Eurozone
Also in focus for EUR investors will be the publication of the Eurozone’s consumer price index. Will another rise in inflation keep the pressure on the ECB to continue raising interest rates and reflect positively on the single currency?
- UK Politics
Amid a lull in date movement in the Pound is likely to be driven by UK political developments, with the uncertainty of the leadership race potentially infusing fresh volatility into Sterling.
Pound Euro Forecast
The Pound Euro exchange rate may also be influenced by concerns over European energy security and the threat of a looming recession.