The Pound Euro exchange rate retreated to a two-week low this week, with the pairing being undermined by hawkish European Central Bank (ECB) commentary and disappointing UK data
Euro fluctuates on hawkish ECB comments
The Euro opened this week’s shortened session on solid footing, as EUR investors were relieved by polls showing that Emmanuel Macron appeared to have consolidated his lead over far-right rival Marine Le Pen in the upcoming French election.
This upside in EUR exchange rates was then bolstered by stronger-than-expected Eurozone trade figures and a robust industrial production print.
The Euro then roared higher in the latter half of the week following remarks from European Central Bank Vice President Luis de Guindos claiming an interest rate hike in July is ‘possible’.
While the single currency was unable to sustain its best levels for long, EUR exchange rates crept higher again at the end of week after the latest Eurozone manufacturing and services PMIs printed above expectations.
Meanwhile, the Pound struggled to attract support through much of this week, as Sterling sentiment was undermined by UK political uncertainty.
This came amid fresh doubts over Boris Johnson’s premiership as it was confirmed the PM would face an inquiry into whether or not he mislead parliament over the ‘partygate’ scandal.
Sterling was then sent into a tailspin at the end of the week after the latest UK retail sales and PMI releases disappointed, with the data raising fresh concerns over a slowdown in consumer spending.
Eurozone inflation in the spotlight
Turning to the start of next week’s session, it’s likely the result of the French election will initially determine the direction of the Euro, with the single currency likely to firm if Macron is able to claim victory.
In terms of data a key focus will be on the release of the Eurozone’s consumer price index.
If April’s preliminary CPI figures report another acceleration of inflation this could bolster expectations the ECB will need to act sooner rather than later, bolstering the Euro in the process.
Also of note to EUR investors will be the Eurozone’s latest GDP release. Markets will be looking for any sign the war in Ukraine may have had a notable impact on economic activity in the bloc, with the Euro likely to weaken if growth undershoots expectations.
Meanwhile, the only UK data of note next week will be the fairly low-impact Confederation of British Industry (CBI) industrial trends and distributive trades indexes.
Otherwise the GBP/EUR exchange rate is likely to remain sensitive to events in Ukraine, with the pairing potentially being infused with fresh volatility is peace talks remain at an impasse.
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