The Pound Euro (GBP/EUR) exchange rate spiked to a three-month high last week. A banking sector crisis in Europe accounting for the bulk of these gains.
Last Week: Pound Euro Rallies amid European Bank Share Rout
The Euro (EUR) faced notable headwinds last week as the European banking sector was plunged into crisis.
Shares in European banks nosedived amid contagion fears after shares in Swiss banking giant Credit Suisse crashed 30% to a record low.
The chaos cast a shadow over the European Central Bank’s (ECB) latest interest rate decision. While the ECB ultimately opted to pursue another 50bps hike, the Euro was dented by subsequent comments ECB President Christine Lagarde indicated future hikes would be data-dependent.
The Pound (GBP) was not immune to the banking sector crisis but fared better than the Euro last week.
The bank crisis’ impact on Federal Reserve rate hike expectations lent support to Sterling. An easing of Fed rate hike bets dampened concerns over potential policy divergence with the Bank of England (BoE).
Sterling wobbled in response to a weaker-than-expected wage growth figures. Before firming after Chancellor Jeremy Hunt claimed the UK will avoid a recession in 2023 as he unveiled his Spring Budget.
Three Things to Watch out for This Week
- Bank Sector Jitters
European bank shares are under fresh selling pressure at the start of this week. A ‘rescue deal’ which will see Credit Suisse acquired by rival UBS has been welcomed by central banks. However bank shares continue to fall, piling fresh pressure on the Euro.
- BoE Interest Rate Decision
The recent bank sector chaos raises questions over the BoE’s impending interest rate decision. If the BoE opts to leave rates on hold the Pound could plummet.
- UK Inflation
The publication of the UK’s consumer price index on Wednesday could also sap Sterling sentiment this week. If inflation falls back to single digits this could also ease pressure on the BoE to continue raising rates.
Pound Euro Outlook
The Pound Euro exchange rate will also be influenced by the latest PMIs from both the UK and Eurozone. These could see GBP/EUR strengthen if the UK’s private sector continues to outperform the Eurozone’s.