Pound-to-Euro Forecast For Coming Week: 18-Month Best Next For GBP/EUR Exchange Rate? (2024)

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The Pound Euro (GBP/EUR) exchange rate traded in a wide range last week, briefly climbing to an 18-month high before plunging to a nine-day low following the confirmation that the UK had entered a technical recession in the second half of 2023.

At the time of writing, GBP/EUR traded at around €1.1690, virtually unchanged from the start of the week, but down over half a cent from its best levels.

Pound (GBP) Exchange Rates Undermined by UK GDP

The Pound (GBP) experienced notable volatility last week on the back of the latest UK GDP figures, released on Thursday.

The Office for National Statistics (ONS) reported GDP fell by 0.3% in the three months to December, versus expectations for a 0.1% contraction.

A second consecutive contraction in growth confirmed that the UK fell into a technical recession in the second half of 2023, and stoked Bank of England (BoE) interest rate cut bets and plunged GBP/EUR to a nine-day low.

Prior to Thursday, a slew of mixed economic data releases infused volatility into Sterling. Starting with a sharp uptick on Tuesday as UK employment data beat expectations.

Unemployment figure unexpectedly fell from 3.9% to 3.8%in December, beating forecasts it would rise to 4%. Similarly, average earnings (excluding bonuses) cooled less than anticipated, with wage growth cooling to 6.2% rather than the predicted 6%.

The forecast-beating jobs data bolstered the Pound on Tuesday as it helped to undermine expectations for an imminent interest rate cut from the BoE.

However, on Wednesday the UK released its latest inflation figure, which revealed that headline inflation unexpectedly held at 4% in January, rather than rising to 4.2% as forecast. Core inflation remained unchanged at 5.1%, missing forecasts of an increase to 5.2%.

Wednesday’s data revived bets that the BoE will begin to cut interest rates from May, as inflation continued to soften.

Keeping GBP exchange rates afloat on Friday was a surge in UK retail sales. The data reported that sales growth in the UK rebounded from -3.3% to 3.4%, well ahead of a more modest 1.5% prediction.

Euro (EUR) Exchange Rates Wavers Despite Economic Optimism

The Euro (EUR)also wobbled last week on the back off the latest German ZEW economic sentiment index and several speeches from European Central Bank (ECB) policymakers.

Germany’s latest economic sentiment index reflected positively on the Euro on Tuesday after reporting a larger-than-expected improvement in morale this month.

Lagarde spoke on the importance of remaining ‘data-dependent’ and cautioned on the need to ‘be confident that it will lead us sustainably to our 2% target.’

This in turn left the Euro trading sideways in the latter stages of the week amid a lack of further guidance from the central bank’s President.

GBP/EUR Forecast: Lack of Data to Undermine the Pound Sterling?

Looking ahead, a significant lack of economic data for both the Pound and the Euro in the first half of the week may leave the GBP/EUR exchange rate vulnerable to risk appetite.

However, amid fresh UK recession woes, the absence in data may weigh on Sterling, as investors continue speculating on future BoE rate cuts.

Towards the end of the week, we will see the publication of the latest UK and Eurozone PMIs. Could February’s figures bolster GBP/EUR if they show the UK private sector continues to grow as the Eurozone remains in contraction?

On Friday, Germany’s latest GDP figures are also set for release. Will confirmation the Eurozone’s largest economy shrank in the last quarter of 2023 place pressure on the Euro?

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