The Pound Euro (GBP/EUR) exchange rate traded in a wide range last week, with Sterling remaining volatile. Looking ahead, there could be more big movements.
What’s Been Happening: GBP/EUR Volatile amid UK Economic Uncertainty
The Pound Euro exchange rate initially surged higher last week. While Sterling enjoyed some dip-buying following the previous week’s sell-off, Russia-Ukraine worries weighed heavily on the Euro (EUR).
After wobbling through Tuesday, GBP/EUR then slumped midweek. Some of the UK’s largest retail firms revealed that the cost-of-living crisis was hitting them hard, pushing the Pound (GBP) lower.
Meanwhile, hawkish expectations from the European Central Bank (ECB) underpinned the single currency.
Sterling then rallied amid hopes of an end to the Northern Ireland Protocol dispute. In addition, cooler US inflation saw UK government borrowing costs fall and triggered a rally in markets, which boosted the riskier Pound over the safer Euro.
At the same time, the ECB’s Economic Bulletin troubled EUR investors as it warned of downside risks to the Eurozone economy.
Finally on Friday, a contraction in UK GDP trimmed GBP/EUR’s gains, with the pair ending the week only marginally higher.
Three Things to Watch Out for This Week
- Inflation Rate Readings
UK inflation is forecast to jump from 10.1% to 10.6%, which could boost Bank of England (BoE) interest rate rise bets. The Eurozone’s final CPI could impact EUR, if it differs from the preliminary reading.
- UK Autumn Statement
The UK government is expected to announce cost-cutting measures as it tries to get the finances back on a sustainable footing. Markets and economists will scrutinise the plans, and their verdict could heavily impact the Pound.
- ZEW Economic Sentiment Index
An expected improvement in German investor morale could support the single currency.
GBP/EUR Forecast
This week also brings the UK’s labour market report on Tuesday and retail sales on Friday, along with the second estimate of the Eurozone’s GDP growth rate for the third quarter. With so many high-impact events covering the economy, central bank policy, and inflation, GBP/EUR could witness further volatility.