The Pound Euro exchange rate trended broadly higher this week, in large part thanks to strengthening Bank of England (BoE) interest rate expectations.
Pound bolstered by BoE rate hike bets
The Pound Euro exchange rate opened the week trading with modest gains. While Sterling was able to tick higher on the back of an improving market mood, these gains were kept in check as EUR sentiment was buoyed by hawkish comments from a European Central Bank (ECB) policymaker.
On Tuesday the GBP/EUR exchange rate spiked to a two-week high. Growing confidence the BoE will raise interest rates again next month initially helped to underpin the Pound, before the currency was forced to relinquish the bulk of these gains by the end of the European session.
At the same time the Euro struggled to hold its ground amid fresh tensions between Russia and the rest of Europe as Finland became a member of NATO.
The Euro then sought to claw back some of its losses in mid-week trade, aided by upbeat German industrial data. However, the single currency’s negative correlation with the US Dollar ultimately thwarted the recovery allowing the Pound to rally once again.
The Pound Euro exchange rate then traded in a fairly narrow range through the end of the session as the closure of UK and Eurozone markets for the long Easter weekend resulted in thin trading conditions in both currencies.
Weak UK GDP to drag on Sterling?
Turning to next week’s session, the most impactful data release looks to be the publication of the UK’s latest GDP figures.
February’s month-on-month GDP figures are forecast to report a modest 0.1% contraction in growth, following a 0.3% expansion in January. This may be a sign that the UK’s economy isn’t out of the woods yet and could drag on the Pound toward the end of next week.
In the meantime, the only notable Eurozone release will be the bloc’s latest retail sales figures. Another positive reading in February could lend some support to the Euro at the start of the week.
Otherwise, a sparse data calendar is likely to see the GBP/EUR exchange rate take its cues from elsewhere. Could an escalation of the conflict in Ukraine infuse fresh volatility into the pairing?
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