Pound Euro exchange rate climbs to one-month high on dovish ECB

The Pound Euro exchange rate trended higher this week, with the pairing firming in the wake of the European Central Bank’s (ECB) latest interest rate decision.

Euro stumbles on dovish ECB forward guidance

The Euro opened the week on strong footing, as EUR investors were relieved to see Emmanuel Macron beat his far-right rival Marine Le Pen in the first round of the French election.

However, these gains quickly evaporated with the release of Germany’s latest ZEW economic sentiment index as it fell to its lowest levels since the start of the pandemic.

The single currency then extended these losses in the second half of the week in the wake of the ECB’s latest interest rate decision.

EUR investors were disappointed by comments from ECB President Lagarde in which she insisted the bank’s asset purchase programme will not conclude before Q3.

Meanwhile, after a poor start to the week after the UK’s latest GDP figures printed below expectations, the Pound was able to make steady gains through the first half of the week.

This upturn in GBP exchange rates came on the back of data reporting a drop in unemployment and another surge in domestic inflation. The two releases bolstered expectations for another Bank of England (BoE) rate hike in May and underpinned Sterling demand.

The latter half of the week then saw the Pound’s bullish momentum fade amidst a lull in UK data and thin trading conditions ahead of the long Easter weekend.

UK and Eurozone PMIs in the spotlight

Turning to next week’s session, the primary catalyst of movement in the GBP/EUR exchange rate will likely be the publication of the latest PMI figures from both the UK and Eurozone.

The former could see the Pound strengthen at the end of next week if April’s UK service PMI prints anywhere close to March’s nine-month high.

Meanwhile, the Euro could face some pressure if this month’s PMI releases indicate the war in Ukraine is starting to negatively impact economic activity in the Eurozone.

Also on next week’s data calendar will be the UK’s latest retail sales figures, where a rebound in sales growth last month could also be supportive of Sterling.

Of course, the situation in Ukraine will continue to influence the GBP/EUR exchange rate as well. A new large-scale offensive by Russian forces in Eastern Ukraine could infuse notable volatility into the pairing.

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