The Pound Euro (GBP/EUR) exchange rate struck a new five-month high last week. The pairing being underpinned by Bank of England (BoE) interest rate speculation.
What’s Been Happening: Pound Strengthened by Rate Hike Bets
The GBP/EUR exchange rate got off to a slow start last week. The long bank-holiday weekend resulted in thin trading conditions in both currencies.
The Pound (GBP) quickly found its feet amid BoE rate hike bets. Following the previous week’s hotter-than-expected inflation figures, a consensus has emerged that the BoE will need to raise rates as high as 5.5% by the end of 2023.
At the same time, the Euro (EUR) was undermined by a deterioration in Eurozone economic sentiment, amid a declining outlook for the bloc.
Adding to the Euro’s woes was data showing inflation in the Eurozone cooled more than expected last month. The sharp drop in inflation led EUR investors to reprice their European Central Bank (ECB) rate hike bets.
After striking a new five-month high in the middle of the week, the GBP/EUR exchange rate then gave up some ground in the latter half of the week.
There was no clear catalyst for the move, but there are signs the Pound may have run afoul of some profit taking.
Three Things to Watch Out for This Week
- German Industrial Data
German’s latest industrial releases will be the spotlight for EUR investors this week. An expected rebound in factory orders and industrial production may help to revive the Euro’s fortunes.
- Ukraine Offensive
Also set to influence EUR exchange rates this week will be Ukraine’s long-awaited counter-offensive. Reports suggesting Russia has repelled Ukraine’s first major offensive could weigh on the single currency.
- BoE Rate Speculation
In the absence of any major UK data, any movement in the Pound is likely to remain tied to BoE rate expectations. Could this continue to underpin GBP exchange rates?
Pound Euro Outlook
The Pound Euro exchange rate may struggle to attract the same levels of support it saw last week. EUR looks to benefit from positive data, while a lack of fresh impetus could cool Sterling sentiment.