Pound To Euro Forecast: GBP Outperforms A Softer Eurozone Economy

The Pound to Euro (GBP/EUR) exchange rate edged higher at the start of the week as softer German consumer data weighed on the single currency while an upward revision to UK manufacturing activity provided modest support for Sterling.

At the time of writing, GBP/EUR was trading around €1.1555, up roughly 0.2% on the day.

DAILY RECAP:

The Euro (EUR) began the week on the defensive following the publication of Germany’s latest retail sales figures.

Data from Destatis showed retail sales fell by 0.3% in April, marking a fourth consecutive monthly decline and reinforcing concerns that consumers in the Eurozone’s largest economy remain under pressure.

While the decline was slightly smaller than expected, the continued weakness in household spending dampened sentiment towards the single currency.

Additional pressure came from the European Central Bank’s latest consumer expectations survey.

The report showed inflation expectations remained broadly unchanged in April, reducing speculation that households are becoming increasingly concerned about future price pressures.

Meanwhile, the Pound (GBP) attracted modest support after revised UK manufacturing PMI figures painted a slightly stronger picture of activity.

The final reading for May was revised higher to 53.9 from an initial estimate of 53.7, representing the strongest expansion in the sector for four years.

Sterling’s gains remained limited, however, as economists questioned how sustainable the improvement might prove.

Much of the recent strength appears linked to businesses bringing forward purchases and orders ahead of expected price increases stemming from ongoing geopolitical tensions and higher energy costs.

GBP/EUR Forecast: Eurozone Inflation Data Takes Centre Stage

Looking ahead, the Eurozone’s preliminary inflation figures are likely to provide the next major catalyst for the Pound to Euro exchange rate.

Economists expect headline inflation to accelerate again in May, potentially reinforcing expectations that the European Central Bank could deliver another interest rate increase at its upcoming policy meeting.

A stronger-than-expected inflation reading may provide fresh support for the Euro by boosting ECB tightening expectations.

For Sterling, the UK economic calendar remains relatively quiet.

In the absence of major domestic releases, broader market sentiment and developments in global bond markets may continue to influence movement in the Pound through the remainder of the week.