The Pound Euro (GBP/EUR) exchange rate traded erratically through last week amid an upwards revision to UK GDP.
What’s Been Happening: GBP/EUR Exchange Rate Fluctuates as UK GDP Improves
The Pound (GBP) opened the week on the front foot as the Confederation of British Industry (CBI) revealed renewed optimism in the retail sector.
Bank of England (BoE) Governor Andrew Bailey buoyed investors’ spirits as he talked of the resilience and strength of the UK banking system. Further hawkish comments on future monetary policy hinted at the central bank continuing its tightening cycle, boosting Sterling.
End of the week and the Pound climbed modestly as the final GDP growth reading surprised to the upside. Against expectations of a flatlining Q4, the UK economy grew by 0.1% in the final quarter of 2022.
Meanwhile, the Euro also started the week positively as investors cheered the return to stability in the financial sector.
In mid-week trade, hawkish comments from European Central Bank (ECB) policymakers provided modest support to the Euro. Despite easing inflation across the Eurozone, underlying price pressures continued to mount, bolstering rate hike expectations.
At the end of the week Eurozone inflation slowed more than expected. Against predictions of a cooling to 7.1%, headline CPI in the Euro area came in at 6.9%. However, with core inflation remaining high, EUR investors were buoyed at the prospect of further tightening.
Three Things to Watch Out for This Week
- Final Eurozone PMIs
Both manufacturing and service PMIs are expected to print to mixed results. The latter is predicted to have improved for the third straight month of expansion, potentially boosting EUR.
- Final UK PMIs
An expected slip from both sectors could weigh on Sterling. However, the resilient services sector is set to be confirmed to remain in expansion territory.
- BoE Financial Policy Summary and Record
The latest update from the central bank could boost the Pound if the BoE appears open to further monetary tightening.
Pound Euro Forecast
Elsewhere, any developments in the Ukraine invasion could weigh on global market sentiment. With Moscow’s decision to station nuclear weapons near Belarus’ western border, tensions could escalate, weakening the Euro.