The Pound Euro (GBP/EUR) exchange rate jumped to a new year-to-date high last week in the wake of the European Central Bank’s (ECB) latest interest rate decision.
What’s Been Happening: Pound Euro Rallies amid Mixed Signals from ECB
The Pound (GBP) stumbled at the start of last week after the UK’s latest manufacturing PMI indicated domestic inflationary pressures may be easing.
The Euro (EUR), meanwhile, struggled to capitialise on the Pound’s weakness, following the publication of some mixed Eurozone inflation figures.
GBP/EUR then started to rebound in the middle of the week as Sterling sentiment was bolstered by Bank of England (BoE) rate hike bets.
This uptick in the Pound Euro exchange rate then accelerated as the ECB concluded its latest interest rate decision.
The ECB raised rates by 25bps as was widely expected but in its accompanying policy statement it did not explicitly commit to raising rates any further. While ECB President Christine Lagarde later declared ‘we’re not pausing’, it seemed EUR investors were unconvinced.
The Euro selloff then persisted through to the end of the week with the publication of some abysmal data. With both German factory orders and Eurozone retail sales contracting more than forecast.
Three Things to Watch Out for This Week
1. BoE Interest Rate Decision
The BoE will deliver its own rate decision this week and is also expected to raise rates by 25bps. If the bank signals this to be the end of its hiking cycle expect the Pound to drop.
2. UK GDP
The UK’s latest quarterly GDP release could also apply pressure to Sterling if growth is shown to have stalled in the first quarter.
3. ECB Speeches
For EUR investors the focus will be on speeches from a couple of ECB policymakers as they look for more clarity on the bank’s policy intentions.
Pound Euro Forecast
The Pound Euro exchange rate could see considerable movement this week depending on the outcome of the BoE’s latest policy meeting. There remains the outside chance stubbornly high inflation in the UK could push the bank to leave the door open to further hikes.