The Pound Euro (GBP/EUR) exchange rate dropped at the end of last week following initial gains for the Pound (GBP), as a dovish Federal Reserve narrowed policy divergency between the central banks of Britain and America.
Into this week, GBP/EUR has yet to find clear direction. A speech from European Central Bank (ECB) board member François Villeroy de Galhau over the weekend appears to have had little effect on the Euro (EUR); Sterling gains may yet be capped by cost-of-living analysis from the Trades Union Congress (TUC).
What’s Been Happening: GBP/EUR Gains Relinquished as Pound Appeal Wanes
The Pound firmed against the majority of its peers last week, buoyed by a downslide in US Dollar (USD) exchange rates. Smaller rate hike bets for the Federal Reserve reduced pressure upon the Bank of England (BoE) to tighten monetary policy.
Sterling tumbled early on, depressed by retail data from the Confederation of British Industry, but recouped losses as fresh economic stimulus measures in China inspired risk-on sentiment.
Subsequently, dovish rhetoric from the BoE’s Catherine Mann and Huw Pill dented the Pound. Meanwhile, the Euro also weakened as inflation data for the bloc missed forecasts.
On Thursday, Sterling recovered somewhat as dovish Fedspeak eased BoE rate hike urgency. In the Eurozone, finalised manufacturing data printed lower than expected and German retail sales slumped – but losses were mediated by US Dollar weakness.
At the end of the week, US non-farm payrolls exceeded expectations, bolstering USD and subsequently depressing the Euro. The Pound also slumped despite general optimism regarding the Northern Ireland Protocol.
Three Things to Watch Out for This Week:
1. GDP
The bloc’s 3-month GDP release is expected to print at 0.2%, demonstrating growth albeit less than last quarter’s. As this is the third estimate, if it prints as forecast EUR will likely trade steadily.
2. Employment
Employment change in the Eurozone looks to have continued growing in November, although by less than previously. If the finalised data prints as expected, EUR could climb.
3. Retail Data
The UK’s retail sales monitor is on track to have increased sales by 0.6% in the year to November, potentially boosting GBP. Meanwhile, sales across the bloc look to have fallen in October – news which could subdue EUR.
Pound Euro (GBP/EUR) Forecast: Central Banks to Play a Role?
Elsewhere, speeches from central bank officials could influence the Pound Euro exchange rate. President Lagarde is expected to speak several times this week, possibly wounding the single currency with further downbeat rhetoric.