The Pound Euro (GBP/EUR) exchange rate retreated from a nine-month high last week. The pairing being rocked by warnings the Bank of England (BoE) could tip the UK into a recession.
What’s Been Happening: Pound Euro Rocked as Higher Rates Threat UK Growth
The Pound (GBP) opened last week’s session with strong form. The GBP/EUR exchange rate climbed nine-month high as Sterling was underpinned by BoE rate hike bets.
The publication of the UK’s consumer price index then brought the Pound crashing back to earth. Stubbornly high inflation led to warnings the BoE may need to hike the UK into a recession to bring prices under control.
Meanwhile, the Euro (EUR) firmed as a souring market mood boosted the currency’s safe-haven appeal.
A 50bps rate hike from the BoE on Thursday then compounded these fears and dragged GBP/EUR to a two-week low.
The Pound Euro exchange rate then clawed back some of these losses at the end of the week. Abysmal Eurozone PMIs weighed on EUR, while surprisingly positive UK retail sales revived Sterling sentiment.
Three Things to Watch Out for This Week
- Eurozone Inflation
In the spotlight this week will be the Eurozone’s own CPI release. June’s preliminary figures could pull the Euro lower if inflation continued to cool at a rapid pace.
- Events in Russia
Following an aborted rebellion by mercenary group Wagner, investors will be keeping a close eye on the situation in Russia. Signs of instability in Russia may lift the Euro if it is seen as hastening the end of the war in Ukraine.
- UK GDP
The only GBP data of note this week will be the UK’s latest GDP figures. But barring a revision to the finalised figures, they may have negligible impact on the Pound.
Pound Euro Outlook
Also in focus for investors will be the ECB’s annual Forum on Central Banking in Sintra. A panel including ECB President Christine Lagarde and BoE Governor Andrew Bailey could spark some volatility in GBP/EUR on Wednesday.