Where Next For GBP/EUR Exchange Rate Buyers?

At the time of writing, the GBP/EUR exchange rate traded at around €1.1731, virtually unchanged from Friday’s opening levels.

The Euro (EUR) began the week undermined by European Central Bank (ECB) interest rate cut bets, as ECB policymaker Klaas Knot echoed his colleagues recent sentiments that the ECB will begin unwinding its monetary policy in June.

Moving into mid-week trade, Germany’s latest GFK consumer confidence index printed higher than expected in June, rising from -24.0 to -20.9, ahead of market bets of a more modest -22.5 reading.

However, as the index confirmed another negative reading, any potential EUR gains were ultimately capped.

Furthermore, inflation in the Eurozone’s largest economy increased as forecast and rose from 2.2% to 2.4% for May’s reading.

Despite the hotter-than-forecast inflation reading from Germany, the common currency struggled to garner investor attention, likely due the common currency’s negative correlation with a rising US Dollar (USD).

On Thursday, the Euro remained subdued despite a duo of upbeat data releases. Unemployment in the bloc fell to a record low of 6.4% in April, while economic sentiment increased in May.

However, despite the positive data readings, the single currency failed to strengthen against its peers.

Moving into the end of the week, Friday saw the Eurozone’s latest inflation reading beat forecasts. Headline inflation rose for the first time in five months, increasing to 2.6%, meanwhile, core inflation rose to 2.9%.

This saw the single currency firm against its peers as signs of persisting inflation could prompt the ECB to adjust its current monetary policy outlook.

Pound Sterling (GBP) Undermined by Absence of Data

The Pound (GBP) began the week fluctuating against its peers despite a stronger-than-expected distributive trades survey from the Confederation of British Industry (CBI).

The survey showed a rise in retail trade in May, and confirmed an increase from a dismal reading in April, which lent the Pound some modest support.

On Wednesday, the Pound was supported by scaled-back Bank of England (BoE) interest rate cut expectations.

Following the announcement that the UK will hold a general election in July, the BoE announced it would be suspending all public appearances until after the election, thereby dampening any bets of a June rate cut, which served to marginally lift Sterling sentiment during mid-week trade.

However, the remainder of the week saw a scarcity of UK data releases, which in turn saw GBP struggle to find a clear trajectory for the remainder of the week.

GBP/EUR Exchange Rate Forecast: ECB Interest Rate Decision in the Spotlight

Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate this week will undoubtedly be the ECB’s upcoming interest rate decision, scheduled for release on Thursday.

Following a slew of dovish ECB comments in recent weeks, markets are expecting that the European Central Bank will be the first central bank to deliver a rate cut this year.

Should the central bank indeed cut rates from 4.5% to 4.25% in its upcoming interest rate meeting, the common currency will likely plummet in the aftermath of the release.

Turning to the Pound, another week of minimal data may see Sterling continue to trade directionless.

The only data release of note will come in the form of the UK’s finalised PMI data for May.

On Monday, the UK’s manufacturing index is expected to rise from 49.1 to 51.3, and is set to enter expansion territory. If the data prints as expected, this could see Sterling begin the week firming against its peers.

On Wednesday, the all-important services index is forecast to increase, and remain in the expansion zone, which will likely buoy Sterling in mid-week trade.