Pound Euro (GBP/EUR) Exchange Rate Wavers amid Central Bank Uncertainty
The Pound Euro (GBP/EUR) exchange rate traded in a wide range last week, fluctuating as both the Bank of England (BoE) and European Central Bank (ECB) gave mixed forward guidance regarding further policy tightening.
At the time of writing, GBP/EUR is trading at €1.1374, having climbed in the past week by a negligible amount.
Pound (GBP) Sentiment Dented by Signs of Economic Tension
The Pound (GBP) traded in a mixed range last week as interest rate hike bets varied and high food inflation highlighted the ongoing cost-of-living crisis.
At the beginning of the week, Sterling enjoyed support from an upbeat retail forecast. Subsequently, Tuesday brought headwinds as grocery inflation for March printed at 17.5%: a new record high.
A hawkish speech from BoE Governor Andrew Bailey capped losses, but a simultaneous jump in the price of food items kept a lid on GBP optimism.
Midweek, the Pound slumped lower despite comments from the BoE’s Bailey that he didn’t think there was a problem going forward regarding the strength of the UK’s economy.
On Thursday, a rise in UK business confidence lent some support to Sterling. Nevertheless, gains were limited, and GBP/EUR dropped to a one-week low as concerns lingered over living cost pressures.
At the end of the week, the Pound gained initially; but stumbled as GDP tailwinds were undermined by speculation over Britain’s economic instability. The UK economy avoided a recession last year, growing unexpectedly by 0.1%, but economists warned of undue optimism:
Martin Beck, Chief Economic Advisor to the EY ITEM Club, said that due to soaring inflation and high interest rates, ‘the revelation from Q4 2022’s national accounts that the economy grew 0.1% quarter-on-quarter… doesn’t carry much significance.’
Euro (EUR) Enjoys Tailwinds on Hawkish ECB, Economic Sentiment
The Euro (EUR) was bolstered throughout the week by hawkish bets for an upcoming interest rate hike. At the end of the week, however, weaker-than-expected inflation data weighed upon the single currency.
On Monday evening, European Central Bank policymaker Isabel Schnabel advocated for successive interest rate hikes, lending support to EUR into Tuesday’s session.
The Euro then weakened, however, as increased risk appetite sapped support for ‘safe’ assets while geopolitical tensions threatened to undermine economic stability. Pertaining to the Ukraine Russia war, Belarus’ foreign ministry laid the blame for their hosting nuclear weapons at Nato’s feet.
Midweek, German consumer confidence improved from –30.6 to –29.5, inspiring an uptick in Euro exchange rates. Capping gains, though, were mixed comments from ECB policymakers: Chief economist Philip Lane indicated that further interest rate hikes would be needed, but possibly after a pause, while Slovak central bank chief Peter Kazimir argued for potentially smaller, but consistent hikes.
On Thursday, Eurozone consumer inflation expectations unexpectedly increased and German inflation exceeded forecasts. The Euro ticked up against several of its peers, but Friday brought EUR headwinds as Eurozone inflation fell more than forecast, easing from 8.5% to 6.9%.
Pound Euro Exchange Rate Forecast: European Data to Drive Movement?
Into the coming week, a lack of significant data from the UK leaves the Pound Euro exchange rate to trade upon the latest Eurozone data.
Germany’s trade balance is expected to have declined in February – if the release prints as expected, the Euro could weaken. Nevertheless, if consumer expectations improve in the Eurozone, EUR losses may be capped.
German factory orders are likely to inspire GBP/EUR movement midweek, while a slowdown in the non-manufacturing activity in the US may lend the single currency a boost. If the ISM PMI prints below February’s figure, a downtrend in the US Dollar (USD) could buoy EUR on account of the currencies’ strong negative correlation.
At the end of the week, US employment data could likewise trigger movement across Euro exchange rates, although GBP/EUR is also likely to be affected by risk sentiment and other external factors.