The Pound Euro (GBP/EUR) exchange rate surged on upbeat UK PMI data last week and maintained its strength through the session despite mounting UK domestic pressures.
What’s Been Happening: GBP/EUR Exchange Rate Rallies on Upbeat UK PMIs
The Pound (GBP) languished at the beginning of the week amid a lack of economic data and waning Brexit optimism. Senior sources close to the Northern Ireland protocol deal warned that negotiations were still far from over.
However, better-than-expected PMI figures boosted Sterling. The service sector surprised to the upside and printed far above expectations to 53.3, the highest level since August. The above forecast figures bolstered Bank of England (BoE) interest rate expectations.
At the end of the week domestic woes returned to the fray. Further news that the post-Brexit trade deal is still some way off from an agreement soured moods somewhat.
Meanwhile, the Euro remained quiet at the start of the week amid Russia-Ukraine tensions and mixed economic data. Manufacturing PMI printed lower than expected but services exhibited the strongest expansion in the sector since last June, far above predictions.
In the second half of the week the Euro continued to be undermined by ongoing fears of the war in Ukraine, while worse-than-expected German economic data also sapped demand as Q4 GDP growth contracted more than forecast.
Three Things to Watch Out for This Week
- Eurozone Inflation
An expected slowdown in Eurozone inflation this month could temper ECB rate hike bets and weigh on the Euro.
- Northern Ireland Protocol Deal
A deal to resolve the contentious Northern Ireland Protocol is reportedly close. Could hope for a more amicable UK-EU relationship going forward help to boost the Pound?
- Euro Area Unemployment Rate
A third consecutive month of stable unemployment could boost the Euro. However, an uptick could pare rate hike bets, softening the Euro.
Pound Euro Forecast
Elsewhere, ongoing Ukraine-Russia tensions could continue to influence the Euro. Meanwhile, even if a post-Brexit deal is agreed, UK political tensions could worsen. A return to political instability could weigh on Sterling.