Pound Euro (GBP/EUR) Exchange Rate Tumbles after Steady Week of Trade
The Pound Euro (GBP/EUR) exchange rate fell off a cliff at the end of last week, having trended sideways through the majority of the session. Triggering the sudden downturn may have been the sudden resignation of UK Deputy Prime Minister Dominic Raab, as well as turmoil within the Confederation of British Industry (CBI).
At the time of writing, GBP/EUR is trading at €1.1319, having fallen over the course of the week.
Pound (GBP) Loses Gains as Week Closes on Tumultuous Note
On Monday, the Pound (GBP) was initially buoyed by a bout of optimism as businesses’ economic outlook improved. Analysts observed that tumbling energy prices, easing Brexit woes, and waning issues with recruitment and supply chains were supporting morale.
Sterling subsequently reversed its gains, however; into Tuesday, it was revealed that while the UK economy added more jobs than forecast in January, unemployment rose to 3.8%.
The Pound’s main economic stimulus came midweek. UK inflation printed at 10.1% rather than the 9.8% forecast, marking a higher inflation reading than the whole of Western Europe.
Expectations increased for successive interest rate hikes from the Bank of England (BoE), boosting the Pound alongside an upbeat speech from Chancellor of the exchequer Jeremy Hunt.
At the end of the week, Sterling lapsed against several of its peers, plummeting against the Euro (EUR) as a worse-than-expected fall in retail sales dampened morale. Meanwhile, the shock resignation of Deputy Prime Minister Dominic Raab exacerbated losses alongside the cutting of ties between several big-name brands and the Confederation of British Industry (CBI).
Given allegations of misconduct within the organisation, companies such as Aviva, Virgin Media O2 and NatWest suspended their membership with CBI, leading Mujtaba Rahman, European managing director at Eurasia Group, to describe the Confederation as being ‘in total free fall.’
Euro (EUR) Gains as ECB Turn Hawkish
The Euro trended sideways through the first half of last week’s session but spiked upwards on Friday as sentiment brightened. Upbeat PMIs from the US failed to depress the single currency despite the strong negative correlation between EUR and the US Dollar (USD).
Earlier in the week, escalating tensions between Russia and Ukraine weakened Euro morale as risk-sensitive currencies lost support. On Tuesday, a worse-than-expected ZEW economic sentiment index from Germany weighed further upon the currency.
Midweek, inflation in the Eurozone printed in line with forecasts, inspiring limited movement. Expectations for the European Central Bank (ECB) were mixed, with some policymakers striking a hawkish tone.
Thursday brought some tailwinds as the latest minutes from the bloc’s central bank showed a consensus to hike interest rates. Governing Council member Klaas Knot boldly remarked:
‘Mildly restrictive territory will not be enough to counter an underlying inflation rate that has been creeping up towards 6%. We need a sufficiently restrictive stance.’
On Friday, EUR saw significant gains as analysts suggested it was benefitting from the easing of last year’s negative terms of trade shock. They remarked the currency’s outlook had improved amid a flurry of better-than-expected data and reduced fears over the growth slowdown across the bloc.
GBP/EUR Exchange Rate Forecast: German Business Climate to Improve?
Into the coming week, German data may be the first factor to influence trading. The country’s business climate looks to have improved in April, potentially inspiring EUR tailwinds.
On Thursday, economic sentiment in the bloc is forecast to have weakened. If the reading prints as expected, GBP/EUR could climb; however, a drop in the US growth rate may cause the Euro to recoup its losses.
At the end of the week, German GDP and employment data is likely to affect the Pound Euro exchange rate. If the unemployment rate omits to climb, EUR could gain strength; subsequently, a rise in GDP growth may boost the single currency further.
Meanwhile, additional headwinds in UK politics may trigger Sterling volatility.