Pound To Euro Week Ahead Forecast: GBP/EUR Strengthened By Ukraine Peace Concerns
The Pound to Euro (GBP/EUR) exchange rate rallied last week, with the pairing being propelled to a new two-month high.
At time of writing the GBP/EUR exchange rate was trading at around €1.2074. Up roughly 0.7% from last week’s opening rate.
The Euro (EUR) faced notable headwinds this week, primarily due to diminishing optimism surrounding peace negotiations in Ukraine.
However, at the start of the week the focus was on the European Central Bank (ECB).
With the euro coming under pressure after ECB board member Fabio Panetta expressed concern that the bank might undershoot its 2% inflation target.
The EUR selling bias was then reinforced by the exclusion of European representatives from the US-Russia discussions on Ukraine’s future raised concerns about Europe’s influence in the peace process. These concerns were compounded by a spat between US President Donald Trump and Ukrainian President Volodymyr Zelenskyy.
The Euro then remained on the defensive through to the end of the week as the Eurozone’s latest PMIs fell short of expectations, with the bloc’s private sector only narrowly avoiding a contraction in February.
While it rose against the Euro, the Pound (GBP) traded in a wide range against most of its other peers last week amid a mixed response to the UK’s latest economic releases.
Notably, both inflation and wage growth surpassed expectations, with the Consumer Price Index (CPI) rising to 3.0% in January, up from 2.5% in December, and wage growth accelerating beyond forecasts.
Despite these figures, the impact on the Pound was muted, as markets remained focused on the Bank of England (BoE) monetary policy trajectory, with most GBP investors remaining confident the BoE will cut interest rates again in May.
The Pound was then infused with further volatility at the end of the week following some uneven UK data. While UK retail sales smashed forecasts, and February’s preliminary services PMI outpaced expectations, UK tax receipts printed below forecast, raising fresh fears over tax hikes or spending cuts.
Looking to the week ahead, the outcome of Germany’s federal election over the weekend is likely to infuse volatility into the Pound Euro exchange rate.
While a decisive victory could provide political stability, and support the Euro, an inconclusive result leading to protracted coalition negotiations may introduce uncertainty, potentially exerting downward pressure on the single currency.
Also of note to EUR investors will be Germany’s latest consumer price index. If February’s preliminary figures report another cooling of inflation it’s likely to stoke expectations for an interest rate cut from the ECB and drag on the euro.
Meanwhile, in the absence of any UK data of note, the Pound may be driven by wider market trends this week.
Adam Solomon
Contributing Analyst
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