The Pound Euro (GBP/EUR) exchange rate surged higher last week as UK data raised expectations of more interest rate rises from the Bank of England (BoE).
So far this week, GBP/EUR has softened somewhat, while the forecasts for this week’s data calendar seem to favour the single currency over the Pound (GBP).
What’s Been Happening: GBP/EUR Surges Higher on BoE Rate Rise Bets
The Pound Euro pairing stumbled early last week amid softer expectations for future BoE policy. However, a larger-than-expected decline in German wholesale prices capped the Euro’s (EUR) upside.
Sterling then surged higher through the remainder of the week as UK data reignited BoE rate rise bets. British wage growth exceeded forecasts, accelerating in November, while UK inflation showed signs of being stickier than expected. This saw the Pound hit a one-month high against the Euro.
Meanwhile, reports that the European Central Bank (ECB) may slow its pace of policy tightening after February’s meeting weighed on the single currency. However, hawkish comments from ECB officials prevented steeper losses.
GBP/EUR then wavered through the rest of the week, with the Pound holding on to its gains despite a shock contraction in UK retail sales last month.
Three Things to Watch Out for This Week
- Flash PMIs
This month’s flash PMI results for both the Eurozone and the UK are out this week. The Eurozone is forecast to perform better than the UK, so the single currency could climb against Sterling.
- German Data
Expected improvements in Germany’s consumer confidence and business climate indicators could lift the Euro this week.
- CBI Reports
Although not as impactful as the PMIs, the latest reports from the Confederation of British Industry (CBI) could impact the Pound. Sterling may slip if the CBI data adds to concerns about the UK economy.
GBP/EUR Forecast
Also to watch out for this week, we have some speeches from ECB officials. Any hawkish hints could lift EUR. Overall, Sterling could slip this week, shedding last week’s gains, as economic data from the Eurozone looks set to outshine the releases from the UK.