The Pound Euro exchange rate traded in a wide range this week amid fluctuating market sentiment and disappointing data from the Eurozone.
Euro weakened by disappointing data
The pound-euro exchange rate initially stumbled this week. Sterling was weakened by risk-off flows, which offset losses in the euro following some lackluster trade data from Germany.
However, the single currency faced fresh selling pressure with the release of the latest eurozone retail sales figures, which showed sales growth plunged a worrying 1.1% in December.
The euro’s losses then widened in response to weaker-than-expected German industrial production numbers. While the pound strengthened amid risk-on flows mid-week.
The British pound continued to attract support as we entered the second half of the week. Sterling exchange rates were boosted by some hawkish comments from Bank of England (BoE) policy maker Catherine Mann, in which she warned of persistent inflationary pressures facing the UK.
Closing out the week was the release of Germany’s latest inflation figures, with the euro silent on Friday as the finalized January release confirmed inflation slowed to its lowest rate since June 2021.
Will sterling plummet if GDP figures show the UK has fallen into recession?
Looking ahead to next week, there are a number of high-impact data releases from the UK that could lead to volatility in the pound.
Perhaps most shocking are the latest UK GDP figures. Preliminary figures for the final quarter of 2023 could weigh heavily on sterling exchange rates if they report that the UK has fallen into recession.
Meanwhile, sterling sentiment will be influenced by the latest UK consumer price index. If the January CPI figures indicate that inflation has risen again, it would help curb speculation about a Bank of England rate cut and would likely boost sterling.
The latest UK jobs report could also strengthen the pound if the December release shows wage growth has started to accelerate again.
Sterling could receive further support at the end of the week if the latest UK retail sales figures show sales growth recovered in January.
Meanwhile, the release of Germany’s latest ZEW economic sentiment index will be the main focus of euro investors next week. Economists predict that confidence will have continued to improve this month. Will this be enough to push up euro exchange rates?
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