The Pound Euro (GBP/EUR) exchange rate remained highly volatile last week, amid another eventful week in UK politics.
What’s Been Happening: GBP/EUR Choppy as Liz Truss Resigns as PM
The Pound opened last week’s session on strong footing after Chancellor Jeremy Hunt announced he would be scrapping the majority of his predecessor’s mini-budget.
But it didn’t take Sterling long to pare these gains. Doubts over Liz Truss’s future as Prime Minister as well as a hotter-than-expected UK inflation print weighed on Sterling in mid-week trade.
By Thursday the writing was already on the wall for Truss. Her resignation as PM helped the GBP/EUR exchange rate to stage a modest recovery.
However, these gains were erased again at the end of the week. An abysmal UK retail sales print and uncertainty over the Conservative leadership race weighing on Sterling sentiment.
Meanwhile, the Euro struggled to find any notable support last week amid fears the Ukraine war continued to escalate.
This limited the single currency’s upside potential which stemmed from its negative correlation with the US Dollar.
Three Things to Watch Out for This Week
- UK Politics
The UK is set to see its third Prime Minister in as many months this week. Rishi Sunak is widely expected to win the Tory leadership race and this could have a calming impact on the Pound.
- ECB Interest Rate Decision
The primary focus for EUR investors this week will be the European Central Bank’s (ECB) latest interest rate decision. While another 75bps hike has been largely priced in, some hawkish forward guidance could propel the Euro higher.
- German GDP
Also set to influence EUR sentiment this week will be the latest German GDP release. Will a contraction in third quarter growth undermine the single currency?
GBP/EUR Forecast
The GBP/EUR exchange rate is likely to remain highly sensitive to UK political developments this week. Will the new PM help to stabilise the Pound or infuse it with more volatility?