The Pound Euro (GBP/EUR) exchange rate slumped last week amid mounting fears of a coming UK recession.
What’s Been Happening: Pound Euro (GBP/EUR) Exchange Rate Sours on Weakening UK Economy
The Pound (GBP) started the week muted amid a lack of data but was supported by interest rate hike bets from the Bank of England (BoE).
However, the latest Confederation of British Industry (CBI) report on factory activity soon soured the mood. Output was revealed to have slowed to the lowest level in almost three years.
Furthermore, the latest PMI data showed business activity shrank, denting the Pound. The crucial services sector fell into contraction territory for the first time since January.
At the end of the week, Sterling faced further headwinds as retail trade declined at its quickest pace since March 2021. Mounting recession fears sapped demand for the Pound heading into the weekend.
Meanwhile, the Euro (EUR) opened the week in volatile territory as German producer price inflation surprised to the downside.
Keeping a firm lid on the Euro were downbeat PMIs as the services sector contracted for the first time since December 2022 amid weakening demand.
A hawkish speech from European Central Bank (ECB) President Christine Lagarde helped buoy the Euro at the end of the week. Lagarde reiterated the need to bring inflation back to 2%, cheering EUR investors.
Three Things to Watch Out for This Week
- Eurozone Inflation Rate
Headline inflation in the Euro area is predicted to ease to 5.1%, but still remains far above the target rate of 2%. If core inflation remains sticky, the Euro could climb on elevated rate hike bets.
- BoE Pill Speech
If BoE Chief Economist Huw Pill sounds cautious amid mounting economic anxieties and recession fears, Sterling could weaken.
- ECB Meeting Minutes
Any signs that policymakers are considering a pause in policy tightening could send EUR lower.
GBP/EUR Forecast
Elsewhere, the Eurozone unemployment rate is set to hold at a record low of 6.4%, which could support the single currency. However, the inflation data is likely to drive most movement.