Pound Euro Exchange Rate Weekly Forecast: GBP/EUR Rocked by Dovish ECB Rate Hike

The Pound Euro (GBP/EUR) exchange rate traded erratically last week as the European Central Bank (ECB) delivered its latest interest rate decision.

What’s Been Happening: Pound Euro Fluctuates as ECB Signals Interest Rate Peak

The Pound (GBP) was strengthened by risk-on sentiment at the start of last week. While the Euro (EUR) stumbled as the European Commission cut its Eurozone growth forecasts for 2023.

Sterling quickly retreated on the back of mixed UK jobs report on Tuesday, before extending these losses in the middle of the week in response to a worrying slump in UK GDP.

At the same time, the euro was unable to fully exploit the pullback in the Pound as EUR investors were reluctant to make any aggressive bets ahead of the ECB’s rate decision.

The ECB’s decision triggered a sharp plunge in EUR exchange rates. While the bank raised rates to a record high of 4.5% it also signalled rate have likely peaked.

However, the euro bounced back at the end of the week, with price conscious investors seeking to buy the dip and leaving GBP/EUR to close the session around half a cent lower.

Three Things to Watch Out for This Week

  1. BoE Interest Rate Decision

The Bank of England (BoE) will have its turn in the spotlight this week. The BoE is expected to raise rates by 25bps, with the Pound likely to face headwinds if it also signals its hiking cycle has come to an end.

  1. UK Inflation

Ahead of the BoE’s rate decision the UK will publish its consumer price index. Could an expected uptick in inflation bolster expectations for further rate hikes and strengthen Sterling in the process?

  1. Eurozone PMIs

For EUR investors the focus will be on the Eurozone’s latest PMI figures. Expect to see the Euro weak if the contraction in the bloc’s private sector deepened this month.

Pound Euro Forecast

A packed UK data calendar could result in a bumpy ride for the GBP/EUR exchange rate this week. In addition to the BoE rate decision and UK CPI figures, we have the latest UK retail sales and PMI releases.

Matthew Andrews

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