Pound Euro (GBP/EUR) Exchange Rate Skyrockets as Single Currency Weakens
The Pound Euro exchange rate traded consistently higher last week as weakness in the Euro (EUR) drove GBP/EUR upward. The Pound (GBP), meanwhile, faced headwinds of its own, fluctuating through the week against its other peers.
At the time of writing, GBP/EUR is trading at €1.1675, having climbed almost 1.4% higher in the past seven days.
Euro (EUR) Tumbles on Poor Economic Forecast
The Euro experienced downward pressure through last week’s session as EUR investors were forced to confront the effects of restrictive monetary policy on the bloc’s economy.
On Monday, Christine Lagarde gave a dovish statement on behalf of the European Central Bank (ECB), triggering bearish sentiment. The ECB President said:
‘Euro area activity has stagnated in recent quarters and is likely to remain weak for the rest of the year. The medium-term outlook for inflation remains surrounded by considerable uncertainty.’
Midweek, a greater-than-expected fall in German inflation was welcomed by economists, who considered it ‘an encouraging sign.’ Yet the single currency continued to weaken as investors were unable to forget the high borrowing costs afflicting European businesses.
On Thursday, German retail sales climbed, lending EUR brief tailwinds: rather than printing at 0.4%, October’s reading came in at 1.1%. Furthermore, inflation in the Eurozone also fell by more than expected but US Dollar (USD) gains effectively depressed Euro sentiment.
At the end of the week, manufacturing PMIs for both the bloc and Germany continued to print in contraction territory. Subsequently, EUR/GBP fell to a 12-week low.
Pound (GBP) Trades in Mixed Range
The Pound traded erratically against several peers last week but climbed against the Euro. Sterling investors continued to digest the UK’s Autumn Statement alongside downwardly revised growth forecasts.
The latest distributive trades report from the Confederation of British Industry (CBI) printed above forecasts on Monday, lending weak support. On Tuesday, the Bank of England (BoE) maintained its hawkish tone as speakers testified to the Treasury Committee, nudging GBP/EUR higher.
Yet GBP gains were limited into Wednesday as consumer credit eased, indicating reduced spending. Moreover, new data on Thursday showed that business closures overtook openings for the first time since 2010, compounding Sterling headwinds.
On Friday, better-than-expected manufacturing data helped the Pound to recoup some of its losses; against EUR, Sterling hit a multi-month high. The finalised figure for November’s PMI printed at 47.2 rather than the original estimate of 46.6, with analysts remarking that business confidence had improved slightly.
GBP/EUR Exchange Rate Forecast: US Payrolls Data to Spark Movement?
Amid a scarcity of significant UK data this coming week, GBP/EUR is likely to trade primarily upon data from the bloc and the US.
The UK’s retail sales monitor on Tuesday may be an exception to this, as the predicted 0.1% increase could lend the Pound some support.
Elsewhere, Germany’s trade balance is expected increase at the start of the week, potentially buoying EUR. Subsequently, speeches from both Christine Lagarde and Luis de Guindos may affect Euro exchange rates.
On Tuesday, an increase in the US ISM services PMI could dent EUR given the currencies’ strong negative correlation. Moreover, German factory orders look to have stagnated midweek, which could pressure the single currency. If Eurozone retail sales grew however, losses may be capped.
On Thursday, improving German industrial production could buoy EUR/GBP, while a combination of German inflation and key US data could influence trade on Friday.