Pound Euro Weekly Forecast: GBP/EUR Exchange Rate Soars amid Eurozone Recession Fears

The Pound Euro (GBP/EUR) exchange rate rose this morning after the Euro area’s final manufacturing PMI confirmed a contraction in factory activity, thereby weighing on the Euro (EUR).

What’s Been Happening: Euro Slumps as Recession Risks Intensify

The Pound Euro exchange rate climbed to a three-month high last week as fears of a looming Eurozone recession weighed heavily on the single currency.

Poor economic data from Germany and the wider Euro area rattled European investors, with larger-than-forecast drops in consumer confidence, business climate, and economic sentiment.

Worries about gas supplies added to economic concerns. Shortly after resuming gas exports, Russian state-backed energy giant Gazprom slashed supplies through the Nord Stream 1 pipeline.

Meanwhile, the Pound (GBP) trended higher amid expectations that the Bank of England (BoE) may raise interest rates by 50 basis points at this week’s meeting.

Concerns about the UK’s economic outlook capped Sterling’s upside, however. Brexit, rising inflation and political uncertainty all played on GBP investors’ minds.

GBP/EUR trimmed its gains on Friday. Strong Eurozone inflation and GDP data boosted EUR, while cost-of-living concerns hurt GBP.

Three Things to Watch Out for This Week

  1. BoE Interest Rate Decision

While the consensus is that the BoE will increase interest rates by 25 bps, policymakers could opt for a larger hike. If so, Sterling would likely jump.

  1. ECB Economic Bulletin

If the European Central Bank’s (ECB) latest economic bulletin adds to recession fears, the single currency could slip.

  1. Final PMI Results

The finalised PMI scores could boost GBP/EUR, as preliminary estimates showed stronger business activity in the UK than the Eurozone. Any unexpected results could cause significant movement.

GBP/EUR Forecast

The magnitude of this week’s movement could hinge on the BoE decision. If the British central bank raises rates by 0.5%, the Pound Euro exchange rate could make significant gains. Even if the BoE only hikes by 0.25%, Sterling may still have the upper hand on the single currency.

Samuel Birnie

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