The Pound Euro (GBP/EUR) exchange rate has slipped to a one-month low this week, with more potential losses on the way.
What’s Been Happening: GBP/EUR Rises and Falls amid Continent-Wide Energy Crisis
The Euro (EUR) had a difficult start last week as further disruption to gas supplies via the Nord Stream pipeline saw energy prices hit fresh record highs.
This, along with downbeat flash PMI results, weighed on EUR through much of the week. However, a drop in the US Dollar (USD) helped the Euro recoup some losses on Wednesday.
The single currency did manage to recover on Friday. Reuters reported that some European Central Bank (ECB) policymakers will advocate a 75-bp rate rise at the bank’s next meeting. In response, EUR strengthened.
At the same time, Sterling found some success early on as the UK flash PMIs fared far better than the Eurozone surveys.
However, as the week progressed worries about the UK economy began to impact the Pound (GBP). Strike action continued to intensify while energy prices surged, rattling GBP investors.
On Friday, Ofgem announced the new UK energy price cap. This triggered further anxiety about the country’s cost-of-living crisis, with GBP/EUR relinquishing the week’s gains.
Three Things to Watch Out for This Week
- Eurozone Flash Inflation Rate
With markets speculating about the size of the ECB’s next rate rise, the Eurozone’s latest inflation rate will help shape expectations. A hot reading could see the Euro strengthen.
- UK Domestic News
With UK data thin on the ground this week, GBP investors may take their cues from domestic headlines. Markets are particularly watchful for any possible policy interventions to address surging UK energy bills.
- Eurozone Unemployment Rate
Economists expect the Eurozone unemployment rate to have held at a record low last month, which could boost EUR.
GBP/EUR Forecast
Unless there is a significant announcement from the UK government, the Pound Euro pair could struggle this week, particularly if Eurozone inflation exceeds forecasts.