Pound Euro (GBP/EUR) Exchange Rate Plummets as Single Currency Enjoys Tailwinds
The Pound Euro (GBP/EUR) exchange rate traded in a narrow range through the majority of last week, before plummeting on Friday as the Euro benefitted from a hawkish European Central Bank (ECB). Meanwhile, the Pound (GBP) slipped against its peers amid quiet Easter trading conditions.
At the time of writing, GBP/EUR is trading at €1.1380, having weakened over the course of the week.
Pound (GBP) Trends Up, Slumps amid Data Scarcity
The Pound rose against the majority of its peers last week despite a ‘data drought’. Hawkish rhetoric from the Bank of England (BoE) as well as a smaller-than-expected slowdown in UK service-sector activity helped support sterling.
At the beginning of the week, lingering tailwinds from the previous week inspired bullish GBP trading. Q4’s surprise GDP growth and subsequent expectations for an imminent interest rate hike from the UK’s central bank boosted the currency.
Into Tuesday, a hawkish speech from the BoE’s chief economist lent further tailwinds to the Pound, although these were countered by more dovish rhetoric from another central bank policymaker.
Silvana Tenreyro, a known dove, commented: ‘I expect that the high current level of Bank Rate will require an earlier and faster reversal, to avoid a significant inflation undershoot.’
Midweek, the UK’s S&P Global/CIPS UK PMI printed at 52.9: lower than February’s reading of 53.5. The print dampened GBP morale somewhat, although March’s release had exceeded expectations.
On Thursday, GBP/EUR slumped around lunchtime, despite tailwinds including an unexpected increase in house prices. According to Halifax, who conducted the survey, the rise showed ‘resilience’ in the housing market.
At the end of the week, a lack of data on account of the long Easter weekend caused GBP to be subdued and the currency dropped to a 17-day low against the Euro.
Euro (EUR) Cheered by Hawkish ECB, Weak US Data
The Euro weakened against the Pound through the majority of the week, though catapulted on Friday as the European Central Bank struck a bold tone.
On Monday, EUR enjoyed some strength despite weakening marginally against the Pound, as an uptick in Eurozone manufacturing activity lent tailwinds.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said of the increase from an earlier reading: ‘Fortunately, a record improvement in supplier lead times and greater input availability has allowed firms to fulfil orders placed in prior months.’
On Tuesday, positive German trade data supported the Euro alongside ongoing weakness in the US Dollar (USD). Nevertheless, the single currency ticked down against Sterling amid declining consumer expectations across the bloc.
Midweek, EUR/GBP climbed as German factory orders drastically exceeded expectations. The 4.8% increase represented the largest jump month-on-month since June 2021.
On Thursday, German industrial production exceeded forecasts, buoying EUR/GBP – although gains were fairly minimal. Friday saw a far more significant uptick for the Euro Pound exchange rate as a hawkish ECB and weaker US Dollar combined sent the single currency soaring.
As the week drew to an end, Eurozone’s central bank adopted an unprecedented set of collateral measures to mitigate the tightening of financial conditions. Simultaneosuly, commentators observed the bank’s shift to a more hawkish policy stance, with Erste Bank noting:
‘High wage pressure will keep core inflation elevated and may lead to delayed monetary easing compared to current expectations.’
GBP/EUR Exchange Rate Forecast: US Inflation and UK GDP to Inspire Movement?
Into the week ahead, the Pound Euro exchange rate is likely to be influenced by key data including the latest US inflation reading as well as February’s economic growth figures for the UK.
While finalised German inflation data is also due to print, the US release is a first reading and therefore more likely to affect market dynamics. If price pressures continued to ease last month, the US Dollar could weaken – in turn buoying the Euro.
Meanwhile, UK GDP growth is expected to have eased. If this is the case, Pound exchange rates could soften.