Pound to Euro Week Ahead Forecast: Seven-Week Low, UK GDP Key Risk

ExchangeRates.org.uk - Looking ahead, the Pound-to-Euro exchange rate may come under additional pressure this week, with the publication of the UK’s latest GDP figures.Economists forecast month-on-month growth will have continued to contract in May, likely piling more pressure on the BoE to support the economy through cutting interest rates.

In the meantime, another weak Eurozone retail sales print could dent the Euro at the start of the session.

DAILY RECAP:

The Pound to Euro (GBP/EUR) exchange rate retreated last week, with UK political uncertainty driving the pairing close to a two-month low.

At the time of writing the GBP/EUR exchange rate was trading at around €1.1602.

Down around 0.9% from last week’s opening levels.

The Pound (GBP) came under sustained pressure through last week’s session, driven by weak domestic data and political uncertainty.

Sterling opened on the defensive after official figures showed a shock decline in real household disposable income in Q1, which offset strong GDP figures.

The UK government’s climbdown on its welfare cuts extended these pressures.

In addition to highlighting divisions within the Labour government, it also raised concerns over a potential fiscal shortfall that might need to be offset by future tax hikes.

Sterling’s slide deepened midweek following dovish remarks from Bank of England (BoE) policymaker Alan Taylor, who suggested the UK’s ‘deteriorating’ economic outlook might warrant more aggressive monetary easing from the bank.

On top of this, uncertainty over the future of Chancellor Rachel Reeves fanned concerns, as Prime Minister Keir Starmer’s failure to offer her his backing during Prime Minister’s questions triggered speculation about her potential replacement and lead to a sharp drop in UK bond prices.

The Pound then clawed back a portion of these losses in the latter half of the week, after Starmer made it clear that Reeves had his full backing.

While it enjoyed strong support against the Pound last week, against its other peers the Euro’s (EUR) performance was a little uneven.

The Euro initially drew support from the Eurozone’s latest consumer price index, as June’s preliminary figures reported inflation returned to the European Central Bank’s (ECB) target range, dampening bets for a July interest rate cut.

However, subsequent data reported a small uptick in Eurozone unemployment, rekindling concerns around the Eurozone’s growth outlook and tempering EUR sentiment.

Beyond the data, the euro also remained sensitive to movements in the US dollar (USD), which acted as a source of volatility amid some sharp swings in the latter through the middle of the week.

On the other hand, reports of positive progress in EU-US trade talks lend support to EUR exchange rates throughout the week.

This content was originally published on ExchangeRates.org.uk