The Pound Euro exchange rate traded in a wide range this week amid a fluctuating market mood and underwhelming Eurozone data.  

Euro undermined by disappointing data 

The Pound Euro exchange rate initially stumbled this week. Sterling was undermined by risk-off flows, which offset the Euro’s losses following some lacklustre German trade data. 

However, the single currency then faced fresh selling pressure with the publication of the Eurozone’s latest retail sales figures, which reported sales growth plummeted a worrying 1.1% in December. 

The Euro’s losses were then extended in response to Germany’s weaker-than-expected industrial production figures. While the Pound firmed amid risk-on flows in the middle of the week. 

Sterling continued to attract support as we entered the second half of the week. GBP exchange rates were buoyed by some hawkish comments from Bank of England (BoE) policymaker Catherine Mann, in which she warned about persistent inflationary pressures facing the UK. 

Closing out the week was the publication of Germany’s latest inflation figures, with the Euro left muted on Friday as January’s finalised release confirmed inflation slowed to its lowest rate since June 2021. 

Sterling to plunge if GDP figures show the UK slipped into recession?

Turning to next week, there are a number of high-impact UK data releases which could drive volatility in the Pound. 

Perhaps the most impactful will be the UK’s latest GDP figures. The preliminary figures for the last quarter of 2023 could weigh heavily on GBP exchange rates if they report the UK slipped into recession. 

In the meantime, Sterling sentiment will be influenced by the UK’s latest consumer price index. If January’s CPI figures report that inflation ticked higher again, it would help to dampen BoE rate cut speculation and likely bolster Sterling. 

The UK’s latest jobs report could also strengthen the Pound if December’s release shows wage growth began to accelerate again. 

Sterling may receive further support at the end of the week if the UK’s latest retail sales figures show sales growth rebounded in January. 

Meanwhile, the publication of Germany’s latest ZEW economic sentiment index will be the primary focus for EUR investors next week. Economists forecast sentiment will have continued to improve this month. Will this be enough to push EUR exchange rates higher? 

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