The Pound Euro (GBP/EUR) exchange rate zigzagged higher as trade got underway this week, with Sterling reclaiming some of Friday’s losses amid hopes that the new Chancellor Jeremy Hunt will bring stability to markets.
What’s Been Happening: GBP/EUR Touches One-Month High on Tax-Cut Climbdown
Worries about the escalating Russia-Ukraine conflict weighed on the Euro (EUR) throughout last week’s trade. After an attack on the symbolic Crimean bridge, Russia ramped up missile strikes on multiple Ukrainian cities.
Meanwhile, the Pound (GBP) wavered higher early on as Chancellor Kwasi Kwarteng brought forward the publication of his fiscal plans by three weeks.
The Bank of England (BoE) then widened its emergency bond-buying scheme, giving Sterling a boost.
However, confusion over whether the BoE would extend its intervention beyond Friday caused some volatility. Sterling slid and rebounded as markets responded to comments and rumours.
Thursday saw the Pound skyrocket amid reports that Liz Truss was gearing up for another huge policy U-turn on her controversial mini-budget. GBP/EUR hit a one-month high, despite the Euro finding success elsewhere.
On Friday, however, Truss sacked Kwarteng, with the ensuing political jitters pushing the Pound lower. At the same time, hawkish comments from the European Central Bank (ECB) boosted EUR.
Three Things to Watch Out for This Week
- UK Politics
Jeremy Hunt is due to deliver a statement on Monday, announcing further changes to the UK’s fiscal policy. Meanwhile, many MPs are calling on Truss to resign. This week could bring more volatility.
- UK Inflation
Economists expect UK inflation to have edged back up to 10% in September. If it comes in hotter, Sterling could climb on BoE rate rise bets.
- ZEW Economic Sentiment
Economic morale in Germany is set to hit a record low. Such a score could weigh heavily on EUR.
GBP/EUR Forecast
As the UK government scrabbles to undo the damage of the mini-budget, we may see GBP/EUR make further gains. However, political instability remains so there could be more turbulence ahead.