The Pound Euro exchange rate struck higher this week, with the pairing gaining over a cent on the back of some hawkish Bank of England (BoE) commentary. 

Pound underpinned by hawkish BoE Rhetoric 

The Pound Euro exchange rate opened this week’s session on strong footing as GBP investors reacted to a speech from BoE policymaker Catherine Mann. 

Mann suggested the BoE needs to ‘stay the course’ and continue raising interest rates if the bank is to prevent high inflation from becoming entrenched. 

At the same time, the Euro was placed on the defensive at the start of the week as a result of the single currency’s negative correlation with the US Dollar, in addition to an underwhelming German industrial production. 

The GBP/EUR exchange rate then extended its gains in mid-week trade as the National Institute for Economic and Social Research (NIESR), suggested the UK is ‘likely’ to avoid a recession in 2023. While the European Central Bank’s (ECB) Klaas Knot undermined rate hike expectations. 

BoE Governor Andrew Bailey’s suggestion the bank needs to ‘see more evidence of inflation pressures easing’, kept the pound on a positive trajectory on Thursday. As a softer-than-expected German inflation weighed on EUR sentiment. 

The UK’s latest GDP print then helped the Pound consolidate its gains at the end of the week after the fourth quarter figures revealed the country narrowly avoided a recession. 

Double-digit inflation to boost Sterling? 

Looking ahead, a slew of high-impact UK data releases could inject volatility into the Pound Euro exchange rate next week. 

The most influential release is likely to be publication of the UK’s consumer price index on Wednesday. 

The CPI release is expected to report UK inflation remained in double digits last month, potentially boosting the Pound if it helps to bolster BoE rate hike expectations. 

Any upside in Sterling could be reinforced by the UK’s latest jobs data, if December’s figures report another acceleration wage growth. 

Closing out the week will be the publication of the UK’s latest retail sales figures, which may drag on GBP exchange rates if sales growth contracted again in January. 

Meanwhile, with notable EUR data thin on the ground next week, movement in the Euro may be driven primarily by Ukraine developments. Any signs that Russia is about to launch a new ground offensive could sap EUR sentiment. 

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