Pound Euro (GBP/EUR) Exchange Rate Softens amid Sterling Headwinds
The Pound Euro (GBP/EUR) exchange rate trended broadly lower last week as a surprise standstill in the UK’s economic growth poured cold water on Pound (GBP) optimism. Meanwhile, the Euro (EUR) benefitted from weakness in the US Dollar (USD) as well as better-than-expected industrial production in the Eurozone.
At the time of writing, GBP/EUR is trading at €1.1289, having continued to sink over the weekend.
Pound (GBP) Trips Lower as the Economy Stalls
The Pound traded in a narrow range at the beginning of the weekly session, enjoying modest tailwinds against its peers as UK retail sales exceeded expectations. Sterling remained supported midweek by hawkish comments from the Bank of England Governor, Andrew Bailey.
Bailey told audience members at the Institute of International Finance: ‘The post crisis reforms to bank regulation have worked. Today I do not believe we face a systemic banking crisis. When I look at the UK banks, they are well capitalised, liquid and able to serve their customers and support the economy.’
On Thursday, however, February’s monthly GDP reading printed at 0% rather than the 0.1% forecast. The news from the Office for National Statistics (ONS) triggered a Sterling selloff as investors observed that the UK’s service and production sectors had contracted.
Commenting on the data, analysts said strikes amongst education professionals had dragged down economic growth. While, conversely, January’s growth was revised up, markets fixated on bleak projections for 2023.
On Friday, Pound headwinds were compounded by a dovish speech from the BoE’s Silvana Tenreyro. The policymaker cautioned against bullish interest rate hike expectations, saying ‘We need to be patient. We don’t want to get burned.’
Euro (EUR) Supported by USD Weakness
The Euro traded in a mixed range this past week, alternately buoyed by upbeat data and its strong negative correlation with the US Dollar, then pressured by geopolitical tensions.
Markets were quiet on Monday and the single currency traded sideways against the Pound. Into Tuesday, retail sales in the Eurozone were shown to have contracted in February: while forecast, the data did little to inspire EUR tailwinds.
The Euro made some gains into Tuesday’s Asian session, as comments from European Central Bank (ECB) policymaker Francois Villeroy de Galhau triggered bullish interest rate hike bets. De Galhau told an audience in New York:
‘We now face the risk of entrenched inflation… inflation has become more widespread, and potentially more persistent.’
Midweek, a tumble in US Dollar exchange rates extended EUR tailwinds and on Thursday, industrial production in the Eurozone in February printed above expectations. According to Eurostat, industrial production rose by 2% on an annual basis, likewise beating forecasts.
At the end of the week, German wholesale prices increased by less than expected, capping Euro gains alongside an escalation of tensions between Russia and Ukraine. Following Finland’s joining of NATO, Russia has complained of an ‘encroachment on [Russian] security and national interests’.
Pound Euro Exchange Rate Forecast: Data-Heavy Week to Inspire Volatility?
Into the coming week, both the UK and Eurozone dockets are brimming with relevant data which may cause GBP/EUR to seesaw.
UK employment data on Tuesday is expected to reflect a reasonably tight labour market, as more jobs look to have been created in January and February’s joblessness is expected to remain at 3.7%. If the release prints as forecast, GBP may climb; although an improvement in Germany’s ZEW economic sentiment index could undermine Sterling gains.
Midweek, UK inflation is predicted to print at 9.8% for the month of March – a contraction, but still significantly above inflation levels in the Eurozone. The Pound Euro exchange rate may be otherwise affected by speeches from several ECB policymakers.
Toward the end of the week, consumer confidence in the Euro area could inspire movement alongside UK retail data and PMIs from the UK, Germany and the Eurozone. International relations may also influence rates, possibly inspiring bearish market sentiment if tensions remain high.