The Pound Euro (GBP/EUR) exchange rate saw volatile trade last week, but strengthened overall amid shifting central bank dynamics.
What’s Been Happening: GBP Climbs on Escalating Rate Hike Bets
Over the past week, interest rate hike bets served to bolster the Pound (GBP) against most peers, which was further propelled by upbeat data.
The latest unemployment and wage growth data printed on Tuesday, bringing strength to GBP by showing a drop in unemployment. Furthermore, hotter-than-expected wage growth further boosted rate hike bets.
Sterling was able to maintain this momentum midweek, with the Bank of England (BoE) coming under increasing pressure to curtail inflation.
These bets then escalated further following the release of the UK’s GDP data for April. While only reporting a monthly expansion of 0.2%, the indication of economic resilience left room for further tightening.
Meanwhile, the Euro (EUR) enjoyed support over the week amid escalating interest rate hike bets. The European Central Bank (ECB) made good on these bets, hiking rates by 25bps as expected.
The ECB further opened the door for a July hike, keeping the common currency afloat against most of its peers. However, the Euro was unable to gain much of a foothold against Sterling as it rallied over the week.
Three Things to Watch Out for This Week
- BoE Interest Rate Decision
Thursday brings the latest interest rate decision from the BoE. While 25bps is priced in, any hawkish forward guidance could boost GBP.
- UK inflation
The latest batch of UK inflation data is due to print on Wednesday, setting the stage for the BoE’s hike. Another robust reading could reinforce BoE rate hike bets.
- EU Consumer Confidence
June’s consumer confidence index for the bloc is scheduled to print on Thursday. A downtick is forecast, which may weigh on EUR.
GBP/EUR Outlook
On Friday, the latest private sector indexes for both the EU and UK are due for release. With further slowdowns forecast by economists across all sectors, this could lead to muted trade for the pairing.