Pound Euro (GBP/EUR) Exchange Rate Buoyed amid Swiss Bank Fiasco
The Pound Euro (GBP/EUR) exchange rate trended broadly higher this past week, as the Euro (EUR) failed to recover fully after plummeting on Wednesday.
A selloff of shares in financial giant Credit Suisse prompted alarm amongst investors, obligating the Swiss Central Bank to step in and bail them out. Subsequently, several other financial institutions lost investment.
At the time of writing, GBP/EUR is trading at €1.1413, approximately 0.6% higher than this time last week.
Euro (EUR) Beleaguered by Perceived Financial Instability
The Euro (EUR) tumbled on the first trading day of the week, as investors were bearish ahead of the European Central Bank (ECB)’s upcoming interest rate decision.
Into Tuesday, EUR was able to make some headway against the Pound. A risk-on mood failed to dent the currency as losses in the US Dollar (USD) propelled the Euro higher, due to the strong negative correlation between the rivals.
Also boosting the Euro was a stronger than expected industrial production reading for the Eurozone in January.
Wednesday saw the single currency relinquish its gains against the Pound and tumble to a twelve-week low. Triggering the crash was a selloff in shares of Credit Suisse after the bank’s biggest financial investor said it could no longer support the institution.
The Swiss Central Bank stepped in to bail out Credit Suisse and subsequently, share prices stabilised. Nevertheless, market jitters remained and EUR investors feared a dovish pivot from the ECB.
In the second half of the week, the European Central Bank raised interest rates by 50bps as initially forecast but gave a dovish caveat in the accompanying statement. The Euro sank once again as ECB President Christine Lagarde commented that:
‘The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions.’
Pound (GBP) Pressured by Wage Growth Slump and Financial Jitters
The Pound trended broadly higher against the Euro last week, though faced multiple headwinds.
On Tuesday, average wage growth in the UK slumped: both including and excluding bonuses. Although employment ticked up, investors worried that the Bank of England (BoE) may consider inflationary pressures to have weakened and ease off policy tightening.
A risk-off mood midweek drew support away from the comparatively risk-sensitive Pound as the incident with Credit Suisse triggered bearish sentiment. Furthermore, Chancellor Jeremy Hunt’s Spring Budget failed to impress critics who argued it did too little for those on low pay.
On Thursday, GBP/EUR inched sideways as the Euro was buoyed by a recovery in the value of Credit Suisse shares. Meanwhile, a lack of significant data left Sterling exposed to losses, as investors feared for the stability of UK banks amid the turmoil of the past week.
By Friday, the Pound traded in a mixed range – falling steeply against the Euro while gaining against the US Dollar. Capping GBP gains was a report from the Organisation for Economic Co-operation and Development (OECD), which revealed that the UK would be the only economy in the G20 to shrink this year, aside from Russia.
Pound Euro Forecast: BoE Decision to Keep Investors on Tenterhooks
The Bank of England’s interest rate decision on Thursday is likely to cause considerable movement in the GBP/EUR exchange rate. Following a week of volatile trading, investors are speculating whether the central bank may decide to play it safe.
Meanwhile, German consumer sentiment is forecast to drop on Tuesday, which could deal a blow to the common currency.
If UK inflation drops by more than forecast midweek, expectations for the BoE decision are likely to be downgraded, dampening GBP sentiment. ECB President Lagarde will then speak, before Thursday brings the UK central bank’s decision.
At the end of the week, British retail sales are expected to reveal growth in February – although less than in January. Coupled with another negative reading from the Confederation of British Industry (CBI), the news could weigh upon the Pound Euro exchange rate.