Pound To Euro Forecast For Week Ahead: UK Inflation Key Risk (2024)

The Pound Euro (GBP/EUR) exchange rate traded in a wide range for the majority of last week, and managed to reach a fresh 10-day high on Friday.

At the time of writing, the GBP/EUR exchange rate traded at around €1.1668, virtually unchanged from Friday’s opening levels.

The Pound (GBP) began the week trapped in a narrow range as a lack of UK data saw GBP exchange rates struggle to find a clear direction.

However, on Tuesday, the Pound faced fresh headwinds following the UK’s latest jobs report.

The data showed that UK unemployment rose in March, rising from 4.2% to 4.3%, and reached an eight-month high.

This led markets to speculate on the timing of Bank of England (BoE) interest rate cuts, with money markets showing an over 50% chance that the central bank will begin loosening monetary policy in June, which served to undermine Sterling sentiment.

However, stronger-than-expected wage growth data in March served to limit GBP losses as average earnings remained unchanged at 6% rather than slowing to 5.9% as expected.

Following the underwhelming jobs data, comments from BoE Chief Economist Huw Pill further undermined the Pound, as he implied markets were not ‘unreasonable’ to price in a rate cut in the summer months.

On Thursday, BoE official Megan Greene stated that that inflation persistence in the UK is waning, however, also commented on the importance of gathering ‘evidence’ that inflation is under control before voting for an interest rate cut.

Despite this somewhat hawkish commentary, Greene’s comments failed to buoy the Pound on Thursday.

Sterling closed the week trading sideways against its peers as a continual lull in data in the second half of the week saw GBP movement limited.

Euro (EUR) Zig-Zags amid Inflow of Data

The Euro (EUR) began the week trading without a clear trajectory on Monday amid an absence of Eurozone data.

On Tuesday, the single currency was underpinned by a stronger-than-expected German ZEW economic sentiment index for May.

The data beat expectations and printed at 47.1 rather than a more modest estimate of 46 and rose from last month’s reading of 42.9.

However, the Euro saw any potential gains capped following Germany’s latest inflation data.

As April’s finalised inflation reading printed at 2.2% in the Eurozone’s largest economy, only marginally above the European Central Bank (ECB)’s 2% target, this saw Euro exchange rates remain on the defensive.

Heading into Wednesday, the common currency struggled to garner investor attention despite the release of some better-than-expected Eurozone data.

The latest industrial production figures beat market expectations in March, coming in at 0.6% rather than a more modest expectation of 0.5%.

Then the Euro failed to rise despite the release of the Eurozone’s second estimate GDP for the first quarter of the year.

The figure confirmed that the Eurozone escaped its technical recession at the end of last year, following a 0.3% expansion of growth in the first three months of 2024.

The Euro closed the week fluctuating against its peers following the release of the Eurozone’s latest inflation figures for April.

Whilst headline inflation remained unchanged at 2.4% as expected, the core figure cooled from 2.9% to 2.7% for this reading, in line with forecasts.

As core inflation cooled closer towards the ECB’s 2% target, EUR exchange rates struggled to catch bids in the aftermath of the release.

GBP/EUR Exchange Rate Forecast: UK Inflation to Drive Movement?

Looking ahead, the primary catalyst of movement for the Pound Euro exchange rate this week is likely to be the UK’s latest inflation figures.

As both core and headline inflation are forecast to cool closer the BoE’s 2% target, this could see GBP exchange rates slump in mid-week trade.

On Thursday’s the UK’s preliminary PMI’s are scheduled for release. Will an expected downturn in the figures keep the Pound on the back foot?

On Friday, the UK’s retail sales for April are forecast to show a marginal growth level of 0.3% which could see GBP close the week firming against its peers.

Turning to the Euro, the first data release of note will come in the form of the Eurozones’s latest flash PMIs for May, scheduled for Thursday.

Any deviation in the expected figures could see EUR exchange rates struggle.

On Friday, Germany’s GDP reading for the first quarter of the year is forecast to show a rebound which could see the Euro end the week up against its rivals.