The Pound Euro (GBP/EUR) exchange rate faced a major setback last week, after the UK’s latest inflation release printed below expectations.
What’s Been Happening: Pound Euro Tumbles on UK Inflation Miss
The Pound (GBP) initially firmed last week. An upbeat market mood helped to lift Sterling. While concerns over the war in Ukraine weighed on the Euro (EUR).
The GBP/EUR exchange rate then climbed to a two-week high on the back of the UK’s latest jobs report. A surprisingly strong UK wage growth reading bolstered Bank of England (BoE) interest rate expectations.
However, GBP/EUR then plunged by a cent in mid-week trade. The UK’s consumer price index revealed domestic inflation slowed more than expected in January. This saw a repricing of BoE rate hike bets and triggered a plunge in the Pound.
Meanwhile, the Euro firmed as an uptick in German wholesale prices buoyed European Central Bank (ECB) rate hike speculation.
The Pound Euro exchange rate then recouped some of its losses at the end of the week. A positive UK retail sales release, coupled with Brexit optimism, reflected positively on the Pound. While the Euro’s negative correlation with the US Dollar (USD) capped the single currency’s upside potential.
Three Things to Watch Out for This Week
- UK PMIs
The only GBP data of note this week will be the UK’s latest PMI releases. February’s preliminary figures are expected to report growth in the private sector continued to shrink. Potentially placing more pressure on the Pound.
- Eurozone PMIs
In contrast, the Eurozone’s own PMIs are expected to report another expansion of private sector growth. Easing recession fears are likely to boost the Euro.
- German Economic Sentiment
Also in focus for EUR investors at the start of this week will be the publication of the latest ZEW surveys. Will another improvement in German economic sentiment help to bolster the Euro?
Pound Euro Forecast
Trade in the Pound Euro exchange rate is likely to remain volatile this week. In addition to some high impact data GBP/EUR is also likely to be influenced by Ukraine developments. Will a new Russian ground offensive weigh heavily on the Euro?