The Pound Euro exchange rate edged lower over the past week amid mixed EUR data and warnings over the UK’s impending Spring Budget.
Euro fluctuates on uneven data
The Pound Euro exchange rate initially stumbled this week. EUR exchange rates firmed in response to hawkish comments from European Central Bank (ECB) President Christine Lagarde. While Sterling struggled to find support amid a lull in UK economic data.
GBP exchange rates remained suppressed on Tuesday, as economists warned that Chancellor Jeremy Hunt could trigger a sharp slump in the Pound if he misjudges his Spring Budget. However, the Euro also struggled as Germany’s latest consumer confidence figures revealed that household morale in the Eurozone’s largest economy remains deeply negative.
GBP/EUR remained trapped in a narrow range in mid-week trade. While the Euro was dented by a surprise deterioration in Eurozone economic sentiment, the Pound was undermined by a bearish market mood.
The Pound Euro exchange rate then fluctuated through the second half of the week following conflicting inflation figures from Germany and the wider Eurozone.
While Germany’s consumer price index printed below expectations in February, the Eurozone figures beat forecasts, pulling the single currency in two different directions.
ECB interest rate decision in the spotlight next week
Turning to next week, the ECB’s latest interest rate decision will undoubtedly act as the main catalyst of movement in the GBP/EUR exchange rate next week.
While the ECB is widely expected to leave interest rates on hold again this month, the bank’s outlook on policy could infuse significant volatility into the Euro.
This comes amid speculation that an April interest rate cut may be on the cards. If Lagarde firmly rules out a cut next month the Euro is likely to surge. However, if the bank’s guidance remains open to interpretation EUR sentiment may falter.
Meanwhile, GBP investors will be focused on the publication of Jeremy Hunt’s Spring Budget on Wednesday.
The Chancellor is reportedly planning to cut taxes next week in an effort to bolster support for the government ahead of a general election later in the year.
However, GBP investors will want to ensure that any cuts are fully funded, for fear of repeating the chaos that followed Liz Truss’s mini-budget in 2022.
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