The Pound Euro (GBP/EUR) exchange rate traded in a wide range last week, with European banking sector jitters and the Bank of England’s (BoE) latest rate decision injecting volatility into the pairing.
What’s Been Happening: Pound Euro Fluctuates amid Banking Sector Chaos
The Pound Euro exchange rate initially weakened last week as a deal for Swiss banking giant UBS to acquire its troubled rival Credit Suisse was welcomed by EUR investors.
The Pound (GBP) was also undermined at the start of the week amid uncertainty over whether or not the Bank of England (BoE) would raise interest rates.
Meanwhile, hawkish rhetoric from European Central Bank (ECB) policymakers helped to accelerate the Euro’s (EUR) gains.
Sterling found fleeting gains in the middle of the week as a hotter-than-expected UK inflation print cemented expectations for a BoE rate hike. While the Euro was bolstered by its negative correlation with the US Dollar (USD).
GBP/EUR stabilised in the wake of the BoE’s rate decision. In addition to raising rates by 25bps, the bank suggested more tightening may be needed if price growth remains persistent.
Renewed concerns over Europe’s banking sector then saw the Euro close last week’s session on a sour note. While an upbeat UK retail sales report extended support to the Pound.
Three Things to Watch Out for This Week
- More Banking Sector Jitters?
Calm has returned to markets at the start of this week. However, any additional signs of weakness in the global banking sector could spark fresh volatility in the GBP/EUR exchange rate.
- Eurozone Inflation
In terms of data, the spotlight this week will be on the Eurozone’s consumer price index. An expected slowdown in inflation this month may weaken ECB rate hike bets and drag on the Euro.
- UK GDP
The most high-impact GBP data release this week will be the UK’s final GDP estimate for the fourth quarter. Could confirmation the UK avoided a recession support the Pound?
Pound Euro Forecast
A couple of speeches by BoE Governor Andrew Bailey also have the potential to influence the Pound Euro exchange rate this week. Will an upbeat outlook reflect positively on Sterling?