The Pound Euro (GBP/EUR) exchange rate fluctuated last week, amid UK economic uncertainty.
What’s Been Happening: Pound Fluctuates amid Muddled Economic Data
The Pound (GBP) began the week on firm footing, with investors betting that the Bank of England (BoE) would continue to hike rates.
However, Sterling was unable to cling to these gains in the midst of downbeat economic forecasts. A leading thinktank suggested that the UK was likely to suffer five years of lost economic growth, and that a recession was highly likely in 2024.
GBP rates were able to make a recovery on Friday, following surprisingly cheery GDP data. In the second quarter, the UK economy expanded by 0.2%, beating forecasts it would stall. This helped to underpin BoE rate hike bets.
Meanwhile, the Euro (EUR) began the week on the defensive following downbeat German data. Sharp falls in German industrial production sapped sentiment towards the single currency.
Beyond this, a light data calendar kept the Euro exposed to its negative correlation with the US Dollar (USD). Persistent fluctuations in USD rates kept EUR on the backfoot.
Also infusing some volatility into the single currency was Italy’s announcement and subsequent U-turn on plans for a banking windfall tax.
Three Things to Watch Out for This Week:
- UK Inflation
Wednesday brings the releases of the latest headline and core inflation data prints. Both figures are forecast to cool, which could dent GBP.
- UK Wage Growth
Tomorrow morning, the pound could rally if a new record acceleration in wage growth bolsters BoE rate hike bets.
- ZEW Economic Sentiment Index
Tuesday brings the release of the key German index. Will deteriorating sentiment weaken EUR?
GBP/EUR Outlook
Elsewhere we could see the UK’s latest retail sales figures drag on the Pound later in the week as economists forecast sales growth will have fallen sharply last month amid the awful weather.