Pound Euro exchange rate fluctuates amid increased volatility

The Pound Euro exchange rate traded in a wide range over the past week as high-impact economic events saw heightened volatility in markets.

Pound volatile as economic uncertainty remains

Despite stronger-than-expected German data on Monday, the Euro slipped against the Pound. News from Ukraine weighed in the single currency, with Kyiv preparing for blackouts amid Russian attacks on energy infrastructure.

Meanwhile, GBP recouped some of the losses suffered following last week’s Bank of England (BoE) recession warning, without a clear catalyst for the movement.

Hawkish comments from the European Central Bank (ECB) supported the single currency midweek. This helped EUR surge higher against GBP, as reports of struggling British businesses stoked concerns about the UK economy.

But the Pound managed to rally on Thursday. UK Prime Minister Rishi Sunak met with Irish Taoiseach Micheál Martin, raising hopes that the Northern Ireland Protocol dispute could be resolved, thereby avoiding a UK-EU trade war.

US inflation data also helped GBP. With inflation falling and the Federal Reserve likely to slow its pace of interest rate rises, UK government borrowing costs went down and global markets rallied, which buoyed the riskier Pound against the safer Euro.

At the same time, the ECB’s latest Economic Bulletin warned of economic risks ahead, which hurt EUR.

The Pound trimmed its gains on Friday morning after UK GDP data report a contraction in third quarter growth, although it was smaller than expected.

Action-packed calendar could cause more volatility

Looking ahead, the UK’s latest jobs data on Tuesday could give GBP a boost. Although the country is slipping into a recession, the labour market remains strong. Another robust jobs report could alleviate some of the economic angst.

Investors will also be looking at wage growth to gauge the BoE’s next move. Rising pay could prompt an upside in GBP.

Also on Tuesday, we have the Eurozone’s second estimate for GDP growth in Q3. Any upward or downward revisions could support or stifle the Euro, respectively. At the same time, an expected improvement in German economic sentiment could aid EUR.

UK inflation on Wednesday is also a key event. Economists expect another sharp rise, which could boost BoE rate rise bets.

At the end of the week, the British government’s Autumn Statement is set to be published, along with a forecast contraction in UK retail sales. Both events could drive further volatility.

Overall, another week packed with high-impact data could see more big swings in GBP/EUR. If the overall outlook is negative for the UK economy, Sterling may slip.

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