The Pound Euro (GBP/EUR) exchange rate faced a major setback last week after Bank of England (BoE) Governor Andrew Bailey cast doubts over the bank’s next interest rate decision.
Last Week: Pound Euro Slumps as BoE Hints UK Interest Rates May Have Peaked
The Pound (GBP) got off to a strong start last week. The GBP/EUR exchange rate struck a three-week high as the UK and EU announced a new deal to replace the controversial Northern Ireland protocol.
Dubbed the ‘Windsor Framework’, it’s hoped the deal will boost the UK economy by smoothing trade relations with the EU.
However GBP/EUR then nosedived in mid-week trade following a speech by the BoE’s Andrew Bailey. Bailey appeared to suggest UK interest rates may have already peaked. Undermining March interest rate hike expectations.
Meanwhile, the Euro opened last week on soft footing. EUR sentiment being undermined by a weak Eurozone economic sentiment index.
The single currency quickly rebounded following the release of the latest French, Spanish and German inflation figures. The stronger-than-expected releases indicated inflation in the Eurozone may be stickier than thought and bolstered European Central Bank (ECB) interest rate expectations.
The Euro then relinquished some of these gains again at the end of the session in response to some underwhelming EUR data.
Three Things to Watch out for This Week
- UK GDP
The only GBP data of note this week will be the UK’s monthly GDP figures. Will a rebound in growth in January help to propel the Pound higher?
- German Industrial Data
Germany’s latest industrial releases will be in the spotlight for EUR investors at the start of this week. Will a contraction in factory orders in January stoke recession fears and pull the Euro lower?
- ECB Lagarde Speech
A speech by ECB President Christine Lagarde may also drive movement in the Euro this week. A hawkish outlook could reinforce ECB rate hike bets and underpin the single currency.
Pound Euro Outlook
Not on the data calendar but also potentially influencing the GBP/EUR exchange rate might be a House of Commons vote on the Windsor Framework. Could resistance to Rishi Sunak’s deal inject some volatility into Sterling?