The Pound Euro (GBP/EUR) exchange rate is currently trading a year-to-date high. The pairing having found its feet after trading erratically last week, in the wake of the latest UK inflation and German GDP releases.
What’s Been Happening: Hot UK Inflation Infuses Volatility into Sterling
The GBP/EUR exchange rate was initially subdued last week. The Euro (EUR) was subdued by weaker-than-forecast Eurozone consumer confidence. While the absence of any UK data left the Pound (GBP) directionless.
May’s preliminary PMIs from the UK and Eurozone then pulled GBP/EUR lower. Before Sterling sentiment was revived by the International Monetary Fund’s (IMF) upgrading of its 2023 UK growth forecast.
The UK’s consumer price index then infected fresh volatility into the Pound in mid-week trade. A smaller-than-expected fall in headline inflation, coupled with a shock jump in core inflation last month fuelled speculation the Bank of England (BoE) may need to raise interest rates as high as 5.5%.
Germany’s latest GDP reading then pulled the Euro lower through the second half of the week. A downwards revision to growth in the first quarter plunged the Eurozone’s largest economy into a technical recession.
The end of the week then saw the Pound firm on the back if upbeat UK retail sales figures as well as comments from Chancellor Jeremy Hunt. In which he signalled his support for UK interest rates to continue to rise.
Three Things to Watch Out for This Week
- Eurozone Inflation Rate
The spotlight this week will be on the Eurozone’s own CPI figures. Could a sharp drop in inflation undermine European Central Bank (ECB) rate hike expectations and weaken the Euro?
- Eurozone Unemployment Rate
Also of note to EUR investors will be the Eurozone’s latest jobs report. If unemployment held at a record low in April this may offer some support to the single currency.
- UK Manufacturing PMI
The only UK data of note this week will be the finalised release of May’s manufacturing PMI. Could an upwards revision to factory sector growth help to buoy the Pound?
Pound Euro Outlook
The Pound Euro exchange rate looks poised to strengthen this week on the back of the Eurozone’s latest CPI figures. Although any gains could be tempered by ECB President Christine Lagarde, if she strikes a hawkish tone.