The Pound Euro (GBP/EUR) exchange rate experienced severe volatility last week, slumping to a one-month low before recapturing all its losses. So far today, GBP/EUR is fluctuating.
What’s Been Happening: GBP/EUR Whipsaws amid Central Bank Speculation
The start of last week’s session saw the Pound (GBP) slump against the Euro (EUR). Hawkish comments from two European Central Bank (ECB) policymakers lifted the common currency, while Sterling suffered from a lack of UK economic data.
Hawkish comments from Federal Reserve Chair Jerome Powell added to GBP’s woes, with markets expecting a widening policy gap between the Fed and the Bank of England (BoE). Dovish comments from BoE rate setter Swati Dhingra amplified the downside.
Sterling began to rally on Thursday, however, with the upside initially sparked by a market correction.
Meanwhile, Russia-Ukraine worries weighed on the single currency. Mixed Eurozone data failed to prompt an upside. Although German industrial production bounced back strongly in January, sales in the country slumped and Eurozone Q4 GDP was revised lower.
A pullback in Fed rate hike bets aided GBP’s recovery, while stronger-than-forecast UK GDP data allowed the Pound to recoup the week’s losses.
Three Things to Watch Out for This Week
- ECB Rate Decision
The ECB policy meeting is in the spotlight for EUR investors this week. With a half-point hike priced in, the focus is on the bank’s forward guidance. Could signals of further rate rises boost the Euro?
- UK Spring Budget
Chancellor Jeremy Hunt will unveil his first Spring Budget this week. Markets are hoping for growth-boosting measures, which could support Sterling.
- UK Jobs Data
The latest UK labour market report is also out this week. An expected rise in the jobless rate and softening wage growth could weigh on GBP exchange rates.
GBP/EUR Forecast
If this week’s events unfold as expected, the Pound Euro exchange rate could decline on expected policy divergence from the BoE and the ECB. However, if the European Central Bank strikes a dovish tone and Chancellor Hunt announces policies that are popular with investors, Sterling could climb against the single currency.