The Pound Euro exchange rate fluctuated this week, amid some abysmal UK data and renewed concerns over the war in Ukraine.
Pound undermined by worrying PMI release
The Pound Euro exchange rate faced heavy selling pressure in the first half of this week, following the publication of the UK’s latest PMI releases.
A sharper-than-expected contraction in the service sector saw the UK’s compositive PMI strike its worst levels in two years and sent Sterling sharply lower on Tuesday.
But the Pound was then able to claw back the majority of these gains in the latter half of the week, amid Bank of England (BoE) interest rate speculation.
In contrast the Euro got off to a strong start this week thanks to the publication of the Eurozone’s own PMIs.
January’s preliminary figures reported the bloc’s private sector returned to growth for the first time in seven months. The upbeat release bolstered European Central Bank (ECB) rate hike bets and eased Eurozone recession fears.
However, the Euro then struggled to sustain these gains through the second half of the week. EUR sentiment was pressured by fresh concerns over the war in Ukraine amid warnings from Russia that the West’s decision to supply Kyiv with heavy tanks would escalate the conflict.
BoE and ECB interest rate decisions to drive GBP/EUR exchange rate
It seems safe to assume the main catalysts of movement in the GBP/EUR exchange rate next week will be the BoE and ECB’s latest interest rate decisions.
In light of recent speculation the BoE’s decision may cause the greatest volatility. With another 50bps rate hike largely priced in, appetite within the bank for further increases will likely determine any subsequent movement in the Pound
If some members of the Monetary Policy Committee (MPC) continue to call for the BoE to leave rates unchanged then GBP exchange rates could plunge.
Similarly, the ECB is widely expected to deliver a 50bps hike next month, with EUR investors focused on the bank’s forward guidance.
If the ECB signals its intentions to ‘stay the course’ with the recent pace of rate hikes the Euro may strengthen. On the other hand, any caution from the bank could be seen as confirming a dovish pivot in March and send EUR exchange rates sharply lower.
Also of note to EUR investors will be the Eurozone’s latest GDP figures. A stronger-than-expected growth reading could help to limit recession concerns and strengthen the Euro.
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