The Pound to Euro (GBP/EUR) exchange rate retreated from a two-month high last week as softer UK economic sentiment and growing expectations for additional European Central Bank interest rate hikes boosted demand for the single currency.
At the time of writing, GBP/EUR was trading around €1.1530, down approximately 0.4% over the week.
Pound to Euro (GBP/EUR): 1.15551 (+0.07%)
Pound to Dollar (GBP/USD): 1.34641 (+0.1%)
Euro to Dollar (EUR/USD): 1.16521 (+0.03%)
DAILY RECAP:
The Pound (GBP) started the week on a positive footing despite the UK bank holiday, briefly pushing GBP/EUR to its highest level in almost two months.
However, Sterling’s gains quickly faded as investors focused on a deteriorating UK economic backdrop.
While the latest Confederation of British Industry retail sales survey showed an improvement in May, the index remained firmly in negative territory, highlighting ongoing weakness in consumer demand.
Additional pressure came from concerns over the UK labour market following the publication of a report warning that rising youth unemployment could impose a significant long-term cost on the British economy.
The report estimated that more than one million young people are now not in employment, education or training, reinforcing concerns over future growth prospects.
Meanwhile, the Euro (EUR) benefited from a series of supportive developments throughout the week.
The single currency initially found support after several European Central Bank policymakers delivered hawkish remarks, reinforcing expectations that borrowing costs may need to rise further.
Support for the Euro strengthened on Wednesday after the ECB’s Financial Stability Review highlighted persistent inflation risks linked to higher energy prices and geopolitical tensions.
Investors increasingly priced in the possibility of multiple ECB rate hikes over the coming year.
The Euro then received another boost on Thursday when Eurozone economic sentiment unexpectedly improved in May, suggesting the bloc’s economy may be proving more resilient than anticipated.
This combination of stronger sentiment data and hawkish monetary policy expectations helped EUR maintain its upward momentum into the weekend.
GBP/EUR Forecast: Eurozone Inflation Report Takes Centre Stage
Attention this week will focus on the Eurozone’s latest inflation figures.
If core inflation accelerates as expected, markets may further increase bets on additional ECB rate hikes, potentially providing fresh support for the Euro.
A stronger inflation reading would reinforce concerns that policymakers still have work to do in bringing price pressures under control.
For Sterling, the UK calendar remains relatively light.
The final reading of May’s services PMI will be the main release for GBP investors.
Should the survey confirm that activity in the UK’s dominant services sector contracted during May, it may add to concerns about slowing economic momentum and limit support for the Pound.
