The Pound Euro (GBP/EUR) exchange rate found fleeting gains last week, following the publication of the UK’s latest consumer price index.
What’s Been Happening: Pound Euro Post-CPI Gains Short-lived
The Pound Euro exchange rate got off to a solid start last week, as the Euro’s negative correlation with the US Dollar left EUR to falter as USD rallied.
Sterling then traded in a narrow range on Tuesday on the back of a mixed UK jobs report. While wage growth printed above expectations, this was offset by a shock rise in unemployment.
At the same time, the euro was muted after Germany’s ZEW economic sentiment index fell short of expectations in April.
The UK’s latest CPI figures then propelled the GBP/EUR exchange rate higher in the middle of the week.
Another double-digit inflation reading in April stoked Bank of England (BoE) interest rate expectations. With some GBP investors even betting the BoE could raise rates as high as 5% by the end of 2023.
However, the GBP/EUR exchange rate was unable to sustain these gains for long, with the pairing relinquishing the bulk of its CPI-driven gains by the end of the week.
This pullback was driven by an abysmal UK retail sales reading in addition to a stronger-than-expected Eurozone services PMI.
Three Things to Watch out for This Week
- Eurozone GDP
The spotlight this week will be on the Eurozone’s latest GDP release. A slowdown in growth in the first quarter could act as a headwind for the Euro at the end of the session.
- German Inflation
Also of note to EUR investors will be the latest German CPI release. An expected slowdown in inflation may drag on the single currency if it weakens European Central Bank (ECB) rate hike bets.
- UK Public Sector Borrowing
The only GBP data of note this week will be the UK’s latest public borrowing figures. Will a widening of the country’s public deficit lead the Pound to weaken?
Pound Euro Outlook
The Pound Euro exchange rate may also be influenced by market risk appetite this week. Could a broadly upbeat mood lend support to Sterling?