GBP Hits Seven-Month Best Before Pullback

GBP/EUR year-ahead forecast: Median, range and upside/downside risks based on projections from 20+ investment banks and FX analysts.View forecasts

The Pound to Euro exchange rate saw volatile trade after central bank decisions, with Sterling briefly surging before surrendering gains.

WEEKLY RECAP:

The Pound (GBP) struggled at the start of the period, weighed down by disappointing UK GDP data which highlighted a fragile growth backdrop.

A lack of fresh economic releases left Sterling subdued for much of the week, with investors reluctant to take positions ahead of the Bank of England’s policy decision.

Sterling then rallied sharply following the announcement.

The Bank of England left interest rates unchanged but struck a notably hawkish tone.

Policymakers upgraded their inflation forecasts and warned they stand ready to act if rising energy prices lead to more persistent price pressures.

This prompted markets to price in two interest rate hikes this year, boosting the Pound.

GBP/EUR briefly climbed to a seven-month high before quickly retreating.

The rally proved short-lived as concerns about the UK’s fiscal position resurfaced.

Data showing a larger-than-expected increase in government borrowing raised fresh questions about the sustainability of public finances.

Meanwhile, the Euro (EUR) saw mixed movement through the week.

The single currency initially found support from US Dollar weakness, reflecting its inverse correlation with the ‘Greenback’.

EUR held steady despite a sharp deterioration in Germany’s ZEW economic sentiment index.

However, the Euro struggled to keep pace with Sterling following the Bank of England’s hawkish signal.

While the European Central Bank also held rates and raised its inflation forecasts, its tone was less aggressive, leaving the Euro comparatively weaker.

EUR later regained some ground as the Pound came under renewed pressure toward the end of the week.

GBP/EUR year-ahead forecast: Median, range and upside/downside risks based on projections from 20+ investment banks and FX analysts.View forecasts

Near-Term GBP/EUR Forecast: Data to Drive Direction

Looking ahead, upcoming UK economic data will be key for Sterling.

Preliminary PMI figures may show a slowdown in activity, particularly in the services sector, which could weigh on the Pound.

The UK’s latest inflation and retail sales data will also be closely watched.

Any signs of weakening consumer demand or easing price pressures could limit Sterling’s upside.

For the Euro, economic sentiment indicators and PMI data will be in focus.

Forecast declines in business and consumer confidence may place pressure on the common currency.

Overall, relative economic performance and central bank expectations are likely to drive GBP/EUR in the near term.