The Pound Euro exchange rate fluctuated this week as both currencies were affected by mixed data and recession fears.
Pound trims gains as inflation jumps
After initially rising on Monday, the Euro fell after the Eurozone’s latest trade report unexpectedly revealed a deficit in March. In addition, the European Commission slashed growth forecasts for this year from 4% to 2.7%.
Better-than-forecast GDP growth limited EUR’s losses as the week went on, and the Euro was able to regain ground against a weakening Pound, despite inflation missing forecasts.
Towards the end of the week, recession fears rattled European markets. Nevertheless, the single currency held firm against Sterling, supported by a hawkish tone from the European Central Bank’s (ECB) April meeting minutes.
Meanwhile, the Pound jumped higher near the start of the week after the UK posted some unexpectedly strong jobs data.
Sterling’s gains were short-lived, however, after UK inflation jumped from 7% to 9% in April, exacerbating cost-of-living fears.
At week’s end, a strong pickup in UK manufacturing output and a surprise rise in retail sales helped buoy GBP, though it wavered against a firm Euro.
UK and Eurozone PMIs in focus
Looking ahead, May’s flash PMIs for both the UK and the Eurozone will likely drive most movement in the GBP/EUR exchange rate.
Markets are forecasting a modest rise in Eurozone business activity, while the UK is set for a slight drop. Such a result could hurt the Pound Euro pair.
Needless to say, any surprise results could have a significant impact.
The single currency also faces some potentially harmful German data. Both consumer and business confidence in Europe’s largest economy are expected to remain near multi-month lows, which could weigh on EUR.
Finally, political developments may also inject some volatility into the pair. Negative news around the Ukraine crisis or the Northern Ireland protocol dispute will likely weigh on EUR and GBP, respectively.
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