The Pound Euro (GBP/EUR) exchange rate trended lower last week, as the UK’s economic outlook continued to darken.
What’s Been Happening: GBP Fluctuates amid Gloomy UK Outlook
The Pound (GBP) initially held its ground last week, with a risk-on market mood lending the increasingly risk-sensitive Sterling modest support. However, UK Chancellor Jeremy Hunt’s announcement of less energy support for businesses quickly reversed these gains.
While Tuesday saw forecast-beating retail data for December, clashes between unions and the government prevented GBP from capitalising. Furthermore, speculation over the end of the Bank of England’s (BoE) tightening cycle also weighed on Sterling.
However, the Pound saw modest support after surprising news that the UK economy had expanded rather than contracted in November. This boost brought cheer to investors and lent a touch of optimism for the UK’s economic outlook.
Meanwhile, the Euro (EUR) began the week on strong footing as Eurozone unemployment held at a historic low.
Over the course of the week, EUR managed to firm, as hawkish comments from the European Central Bank (ECB) inspired hopes of further tightening. However, a slowdown in German 2022 GDP tempered these gains at the end of the week.
Three Things to Watch Out for This Week
- UK Inflation
Data on Wednesday is expected to report UK inflation ticked downward last month. This could provide a boost for GBP, by easing pressures on UK businesses and households.
- German ZEW Survey
German’s latest ZEW survey will be in focus for EUR investors. An uptick in economic sentiment may boost the Euro.
- UK Retail Sales
Friday brings December’s retail sales data for the UK. An increase in sales growth in December is expected, which may lift Sterling.
Pound Euro (GBP/EUR) Outlook
Trade in the Pound Euro (GBP/EUR) exchange rate could narrow this week, as the glut of data provides boons for both sides of the pairing. If the UK’s inflation falls further than forecast it may prompt investors to pare back rate hike bets and weaken GBP/EUR, if ECB President Christine Lagarde maintains the bank’s hawkish stance, EUR could strengthen.