Pound To Euro Week Ahead Forecast: GBP Shrugs Off Weak Data To Hit Ten-Day Best

The Pound to Euro (GBP/EUR) exchange rate advanced strongly last week as easing political tensions in the UK helped Sterling outperform a Euro weighed down by weak Eurozone business activity data.

DAILY RECAP:

The Pound (GBP) staged an impressive recovery last week as concerns surrounding the future of Prime Minister Keir Starmer eased and UK bond markets stabilised.

Investors were reassured after Starmer avoided an immediate leadership challenge, while Greater Manchester Mayor Andy Burnham sought to calm markets by signalling support for the government’s existing fiscal framework and spending rules.

The reduction in political uncertainty helped gilt yields retreat from recent highs and allowed Sterling to regain lost ground.

Remarkably, the Pound managed to maintain its advance despite a run of disappointing domestic economic releases.

Tuesday’s labour market figures showed unemployment unexpectedly rising, while Wednesday’s inflation data revealed a sharper-than-forecast slowdown in price growth.

Thursday then brought a major downside surprise as the UK services PMI fell into contraction territory for the first time in more than a year.

The week ended with a disappointing retail sales report, highlighting continued pressure on consumer spending.

However, markets largely looked through the weak economic data, focusing instead on easing political risks and the view that inflationary pressures linked to higher global energy costs could still prompt future Bank of England tightening.

Meanwhile, the Euro (EUR) struggled to find support through much of the week.

The single currency initially came under pressure as a firmer US Dollar weighed on EUR through its negative correlation with the ‘Greenback’.

A lack of major Eurozone economic releases left the common currency without a strong domestic catalyst for much of the week.

The pressure intensified on Thursday after preliminary PMI surveys showed business activity across the Eurozone deteriorated further in May.

Both manufacturing and services activity disappointed expectations, with the composite index remaining firmly below the 50 threshold that separates growth from contraction.

The weak data reinforced concerns about the Eurozone growth outlook and weighed heavily on EUR sentiment heading into the weekend.

GBP/EUR Forecast: German Inflation and Eurozone Sentiment in Focus

Looking ahead, Germany’s preliminary inflation figures for May are likely to be the key release for Euro investors.

Any indication that higher energy costs are feeding through into broader price pressures could strengthen expectations for further European Central Bank policy tightening and provide support for the Euro.

Before then, attention will focus on the Eurozone’s latest economic sentiment survey.

Another deterioration in business and consumer confidence could reinforce concerns over regional growth and place additional pressure on EUR exchange rates.

For Sterling, the domestic calendar remains relatively light.

The Confederation of British Industry’s latest distributive trades survey will provide some insight into retail sector conditions following last week’s disappointing sales figures.

However, unless the survey delivers a significant surprise, broader political developments and shifts in global risk sentiment may remain the dominant drivers for the Pound.