The Pound Euro exchange rate retreated over the past week, amidst fresh hopes for a diplomatic solution to the war in Ukraine.
Euro buoyed by hopes for a negotiated end to the war in Ukraine
The Euro remained on the back foot at the start of this week, with the GBP/EUR exchange rate able to climb to fresh highs amidst fears European energy supplies could be disrupted by a possible EU ban on Russian oil.
This then gave way to a relief rally with the Euro snapping a six-day losing streak as the EU opted not to outright ban Russian oil exports.
Hopes for a diplomatic solution to the war in Ukraine, amidst a temporary ceasefire in parts of the country then gave EUR exchange rates another leg up in mid-week trade.
The Euro another made an attempt to rally in the latter half of the week after the European Central Bank (ECB) announced plans to accelerate the winding down of its asset purchasing programme, only for these gains to be reversed following some dovish comments from ECB President Christine Lagarde.
Meanwhile, the Pound spent most of this week adrift, as the absence of any notable data left the currency without any strong directional bias.
The only release of note came at the tail end of the session, with a stronger-than-expected rebound in UK GDP at the start of 2022 only offering some modest support to Sterling.
BoE interest rate decision in the spotlight
Turning to next week’s session a key focus will be on the Bank of England (BoE) as it concludes its March policy meeting.
GBP investors have largely priced in the BoE’s third consecutive rate hike this month leaving the focus to instead be on the bank’s forward guidance.
Should the bank adopt a more cautious outlook in light of the conflict in Ukraine the Pound is likely to fall. On the other hand, the BoE could signal plans to continue to raise interest rates in an effort to combat soaring inflation. A move which would no doubt bolster Sterling.
In the meantime, GBP exchange rates will be influenced by the UK’s latest jobs report. Will another slowing of wage growth weaken the Pound?
At the same time, the Euro is likely to remain highly sensitive to events in Ukraine, with any more attempts at peace talks potentially bolstering the single currency.
Otherwise, EUR exchange rates could be dented by the release of Germany’s latest ZEW surveys amidst forecast economic sentiment will have dropped this month.
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