The Pound Euro (GBP/EUR) exchange rate trended broadly higher last week, but saw significant volatility on the back of the Eurozone’s latest GDP data and the Bank of England’s (BoE) interest rate decision.
What’s Been Happening: Pound Euro Fluctuates Following BoE Rate Decision
The Pound (GBP) got off to a poor start last week amid a lull in UK economic data. While the Euro (EUR) caught some bids on the back of stronger-than-expected German GDP figures.
However, the single currency struggled to sustain these gains for long. The publication of weaker-than-forecast Eurozone inflation on Tuesday proved to be a particular drag on EUR, as it reinforced expectations the European Central Bank’s (ECB) hiking cycle is over.
After holding its ground in mid-week trade, the GBP/EUR exchange rate was then injected with volatility in the wake of the BoE’s interest rate decision. While the BoE left rates on hold, as forecast, a hawkish split amongst the Monetary Policy Committee helped Sterling to bounce back from its worst levels.
The Pound then closed the week on a high amid a notable improvement in market risk appetite. This followed a sharp drop in the US Dollar (USD), after abysmal US employment data undermined Federal Reserve rate hike bets.
Three Things to Watch Out for This Week
- UK GDP
Centre stage this week will be the publication of the UK’s latest GDP figures. Domestic growth is forecast to have contracted in the third quarter, which weigh heavily on the Pound later in the week.
- German Industrial Data
In the meantime, the focus for EUR investors will be Germany’s latest industrial data. Factory orders printed above expectations in September. If industrial production does the same, the Euro could rally.
- Eurozone Retail Sales
Also influencing the single currency will be the Eurozone’s latest retail sales print. Will another contraction in sales growth drag on the Euro?
Pound Euro Forecast
Market risk sentiment may also continue to drive movement in the Pound Euro exchange rate this week. If the mood sours, expect Sterling to struggle.