Pound Euro exchange rate fluctuates in first week of 2023

The Pound Euro exchange rate traded in a wide range over the past week as trading conditions remained thin through the first session of 2023.  

Euro surges off weaker-than-expected Inflation release 

The Pound Euro exchange rate started the week on strong footing amid a pull back in the single currency. 

The Euro fell victim to its negative correlation with the US Dollar as the latter spiked as markets opened for the first time in 2023. Additional pressure on the Euro came from a weaker-than-expected German consumer price index. 

EUR exchange rates then began to rebound in mid-week trade as USD demand subsided as the Eurozone’s latest services PMI beat initial forecasts. 

The latter half of the week then saw the Euro continue to climb against the Pound, despite the latest Eurozone CPI figures reporting inflation in the bloc cooled at a faster-than-expected pace last month. 

The Pound, meanwhile, got off to stronger start this week. The initial uptick in GBP was attributed to an upbeat market mood and above-forecast UK PMI release. 

However Sterling was unable to maintain this momentum through the latter half of the week. Sterling sentiment initially faltered after a speech by Prime Minister Rishi Sunak pledging to half inflation and grow the economy failed to inspire confidence in GBP investors. 

GBP exchange rates then came under additional pressure with the publication of the latest UK services PMI. A revision to December’s finalised figures saw the sector fail to avoid a contraction at the end of the year. 

Slowing German GDP to weigh on the Euro next week? 

Turning to next week’s session a key catalyst of movement in the Pound Euro exchange rate is likely to be the publication of Germany’s GDP figures for 2022.  

The full year GDP release is highly likely to show growth in Germany’s economy slowed when compared to 2021. 

Subsequent movement in the Euro will be dependent on the pace at which the Eurozone’s largest economy slowed last year. A larger-than-expected slowing of growth could place significant pressure on the single currency. 

Meanwhile the publication of the UK’s own GDP figures could lead the Pound to weaken next week. The latest monthly growth figures are expected to report the UK economy shrank in November. 

A larger-than-expected contraction could raise concerns over the depths of the UK’s current recession and weaken Sterling sentiment. 

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