The Pound-Euro rate could stay elevated if French debt fears persist, although weak UK GDP may limit Sterling’s ability to extend recent gains.
The Pound Euro (GBP/EUR) exchange rate rose to a 16-month high last week as fears of a debt crisis in France weighed heavily on the common currency.
At the time of writing, GBP/EUR was trading at €1.1814, up 0.4% on the week.
Pound to Euro (GBP/EUR): 1.181375 (+0.13%)
Euro to Dollar (EUR/USD): 1.120134 (-0.10%)
DAILY RECAP:
The Euro (EUR) started the week on the back foot as rising French bond yields stoked concerns about a debt crisis in the Eurozone’s second-largest economy, which could present contagion risks to the rest of the bloc.
Political instability in Spain added to the pressure on the single currency, after Spanish Prime Minister Pedro Sánchez called a snap election.
The Euro attempted to stabilise on Tuesday as French government bonds recovered somewhat, even as German factory orders slumped a startling 10% in August.
However, the bond market turmoil continued to plague the common currency through the week, pushing the Euro down to multi-month lows against many of its rivals.
Meanwhile, the Pound (GBP) faced modest pressure at the start of last week’s session as it suffered some profit-taking following its strong performance the previous week. However, an upward revision to the latest UK services PMI cushioned GBP.
Sterling attracted fresh support on Tuesday, thanks to expectations for a Bank of England (BoE) interest rate hike next month and the possibility of closer ties between the UK and the EU.
After a subdued session on Wednesday, the Pound gained ground in the latter part of the week thanks to hawkish comments from BoE Governor Andrew Bailey.
GBP then ended the week on uncertain footing amid a lack of UK data.
Near-Term GBP/EUR Forecast: UK GDP to Stifle Sterling?
Looking forward, a number of Bank of England and European Central Bank (ECB) policymakers are due to speak throughout the week, including BoE Governor Bailey and ECB President Christine Lagarde on Wednesday.
Investors will be paying close attention to the speeches in an attempt to gauge the central banks’ next steps, which in turn could impact GBP/EUR. A more hawkish stance from the BoE could underpin the Pound.
In terms of data, the key UK release will be the British GDP figures for August, due on Thursday. An expected 0.1% contraction in growth could weigh on Sterling.
For the Euro, the Eurozone’s final consumer price index for September, due on Friday, could lend the single currency support.
However, EUR investors will be keeping a close eye on French bond markets. If debt crisis fears continue to swirl, the Euro could face further pressure.
Our currency coverage draws on live market data, official economic releases and published bank research.
