The Pound Euro exchange rate trended broadly higher this week as a lacklustre Eurozone GDP print pulled the single currency lower.
Euro undermined by GDP disappointment
The Pound Euro exchange rate was initially subdued this week as the single currency was supported by hawkish comments from a European Central Bank (ECB) policymaker. While Sterling was left muted in the absence of any notable UK economic data.
The pairing then traded sideways on Tuesday. The Pound was subdued in the wake of a weak CBI Industrial orders index, at the same time that the Euro was undermined by is negative correlation with the US Dollar.
GBP/EUR remained rangebound in mid-week trade. EUR sentiment was bolstered by hawkish comments from another ECB policymaker, but this was offset by upbeat UK retail data and Bank of England (BoE) interest rate hike speculation.
The GBP/EUR exchange rate finally managed to find some purchase in the second half of the week, as the Euro was undermined in the wake of a weaker-than-expected Eurozone economic sentiment index.
Friday then saw the publication of the Eurozone’s latest GDP figures. This left the Euro on the defensive through the end of the week after growth in bloc proved slower than forecast in the first quarter.
Hawkish ECB rate hike to boost the Euro?
Looking ahead, the spotlight next week will undoubtedly be on the ECB’s latest interest rate decision.
The ECB is widely expected to deliver another rate hike next month. EUR investors have priced in 25bps increase, but there is an outside chance of the bank surprising with a 50bps hike. Expect to see the Euro skyrocket if the ECB opts for the larger interest rate increase.
In the lead up to the ECB’s rate decision, the Eurozone will publish its latest consumer price index on Tuesday.
The flash CPI figures are expected to report inflation in the bloc continue to slow in April. Could this temper ECB rate hike expectations and soften the Euro in the first half of the week?
Meanwhile the Pound may struggle to find support next week. The only notable GBP data releases will be the UK’s latest PMIs. But barring a significant divergence between the preliminary and finalised figures they could have a limited impact on Sterling.
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