By Michael Jacobsen
Sterling starts the week slightly on the back foot against the euro, with markets continuing to reassess expectations around the Bank of England and the wider UK economy. Although inflation in the UK remains above target, recent data has pointed towards slower consumer activity and softer growth conditions, leading investors to question how much further the Bank of England may need to tighten policy this year. As a result, GBP/EUR has lost some momentum in recent days, while EUR/GBP continues to hold relatively firm. For clients with upcoming euro requirements, markets remain sensitive to both economic data and central bank commentary.
The euro has found support from recent comments from the European Central Bank, with policymakers continuing to highlight concerns around persistent inflationary pressures, particularly linked to energy prices. This has helped reinforce expectations that eurozone interest rates may remain elevated for longer than previously anticipated. However, weaker growth across parts of the eurozone, particularly Germany, continues to limit upside potential for the single currency. This leaves GBP/EUR trading within a relatively volatile range, with direction likely to be driven by this week’s incoming economic data from both the UK and Europe.
From a broader market perspective, the US dollar continues to influence overall sentiment across currency markets. Stronger US economic data and higher Treasury yields have kept demand for the dollar elevated, indirectly placing pressure on both sterling and the euro. Looking ahead, this week’s focus will centre on UK inflation and retail sales data, eurozone PMI figures and the release of the Federal Reserve meeting minutes in the US. These data releases are expected to drive volatility across GBP/EUR and EUR/GBP throughout the week, particularly if inflation data surprises in either direction.
If you have any upcoming currency exchange requirements, please speak with your currency consultant for tailored guidance based on current market conditions to help make your money go further.
Key events to watch this week:
Tuesday (UK): UK Employment and Wage Data, important for Bank of England rate expectations. Strong wage growth could support sterling.
Wednesday (UK & Eurozone): UK CPI Inflation and Eurozone Final Inflation figures, likely the key GBP/EUR driver of the week. Higher inflation could increase expectations of further rate pressure.
Wednesday (USA): Federal Reserve Meeting Minutes, with markets assessing the tone on inflation and future US policy direction, which may influence broader USD sentiment.
Thursday (Eurozone): Flash PMI Business Activity Surveys, a key indicator of eurozone economic momentum and likely to influence euro performance.
Friday (UK): UK Retail Sales, an important gauge of consumer confidence and domestic economic activity.