Pound To Euro Forecast For Week Ahead: GBP EUR Trends Higher, Will Buyers See 1.19 Again? (2024)

The Pound to Euro conversion continued to climb higher last week amid shifting interest rate cut bets and mixed macroeconomic releases.

GBP/EUR closed the week at around €1.1865, close to a twenty-two-month high.

The Pound (GBP) was largely subdued as the week opened, amid a lack of fresh UK economic data.

On Tuesday, the latest UK jobs data was pulled into focus. Unemployment unexpectedly increased to 4.4% from February to April, surpassing market forecasts of 4.3% and showing the fourth consecutive increase in the British unemployment rate. Signs of a weakening UK labour market initially soured Sterling sentiment, however, a stronger-than-forecast batch of wage growth data served to cushion GBP’s losses.

Average earnings excluding bonuses held as forecast at 6% in the three months preceding April, while those including bonuses unexpectedly held at an upwardly revised 5.9%, rather than easing to 5.7%. Stubborn wage inflation saw markets mulling over how the Bank of England (BoE) may respond to persistently sticky wages, serving to offset GBP’s potential losses.

The UK’s latest GDP data was then released on Wednesday. Growth stalled in April as forecast, serving to deter investor interest in the Pound and leaving it largely rangebound for much of the session.

On Thursday, a lack of macroeconomic releases saw Sterling fall flat against the majority of its rivals. In addition to this, an underwhelming manifesto from the UK Labour Party ahead of next month’s snap election left GBP rudderless.

A data-light end to the week then left GBP mostly subdued. However, deferred BoE interest rate cut bets seemingly kept Sterling afloat. According to a recent poll by Reuters, economists continue to favour August or September for the BoE’s first interest rate cut, revealing that any hopes of a June rate cut have been dashed.

Euro (EUR) Slumps amid Political Uncertainty

The Euro (EUR) opened Monday’s session on a bleak note, as political uncertainty weighed on the common currency. With far-right Eurosceptic parties gaining traction across the EU and France, concerns about political instability across the region saw EUR tumble to a twenty-two-month low.

Political anxiety continued to reign on Tuesday, hammering the single currency. In addition to this, rating’s agency Moody’s warned that France’s snap election could negatively impact the country’s credit score.

On Wednesday, a tumbling US Dollar (USD) saw the Euro recoup some of its recent losses, due to the currency pairing’s negative trading relationship. Both headline and core inflation in the US cooled to unexpected levels, sparking a huge USD sell-off and rocking global markets.

However, an increasing risk for appetite later in the session saw EUR retreat, due to its safe-haven nature, as investors favoured its riskier rivals.

Then on Thursday, the latest industrial production data from the Eurozone missed forecasts of 0.2%, instead contracting unexpectedly by 0.1%, serving to undermine the common currency.

An influx of commentary from European Central Bank (ECB) policymakers on Friday then fell largely by the wayside, as rate-setters struck tepid, leaving EUR to trade sideways as the week closed.

Pound Euro Exchange Rate Forecast: Inflation Data in Focus

Looking ahead, inflation data from both the Eurozone and the UK is due for release this week. With the Eurozone’s finalised inflation figures set to show a slight warming to 2.6%, EUR may be able to recoup some of its recent losses amid shifting ECB rate cut bets.

Meanwhile, UK headline inflation is set to ease to 1.9%, falling below the central bank’s 2% target rate. This may prompt markets to rethink their current rate cut expectations, hampering GBP exchange rates.