Quick Take: Despite an uninspiring UK Spring Budget, the GBP/EUR exchange rate rose to around €1.1750 last week. UK wage data and GDP growth forecasts this week could influence Sterling, while ECB rate cut speculations may drive the Euro. Market mood and central bank policies remain key for currency movement. The Pound Euro (GBP/EUR) exchange rate climbed over the previous week’s trade, despite the UK Chancellor Jeremy Hunt’s Spring Budget failing to inspire investors. At the time of writing, GBP/EUR traded at around €1.1750, an increase of roughly 0.4% from Friday’s opening levels. At the start of last week, the Pound (GBP) found support as UK Chancellor Jeremy Hunt began to trail some of the investment plans due to be found in the Spring Budget. £360 million in funding was unveiled for the UK’s manufacturing industry, aiming to jump start UK economic growth. While the final services PMI for February was revised lower, the increasingly risk-sensitive Pound managed to rise against safer assets during Tuesday’s bullish market mood.
Pound (GBP) Exchange Rates Pressured by Underwhelming Spring Budget
Chancellor Hunt fully unveiled the Spring Budget on Wednesday. While it contained a litany of measures designed to increase economic growth, the accompanying forecast from the Office for Budget Responsibility (OBR) outlined that growth would only see a meagre increase, and that inflation would fall below 2% in a few months.
As such, Bank of England (BoE) interest rate cut bets increased, which yielded pressure on Sterling over Wednesday and Thursday’s session.
Due to a lack of other data points, Sterling was left to trade in tandem with the market mood. Over Friday’s session, trading conditions improved which elevated the Pound against safer peers.
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Euro (EUR) Exchange Rates Volatile as ECB Downgrades Inflation Forecasts
The Euro (EUR) treaded water at the beginning of the week, amid a short supply of data releases. This kept EUR investors focused on the upcoming interest rate decision from the European Central Bank (ECB).
Tuesday saw EUR exchange rates trade in a mixed capacity, due to variable economic data. While the final services PMI for February was revised higher, producer price inflation in the Eurozone fell more than forecast in January, which sparked renewed bets on interest rate cuts from the ECB.
German trade data surprised to the upside, which increased hopes that the bloc’s largest economy would be able to shrug off the recent downturn, lifting the common currency.
On Thursday, the European Central Bank kept interest rates unchanged as anticipated, and also elected not to adjust its forward guidance. However, a downward revision to its inflation forecasts sparked speculation that rate cuts would soon be on the table.
Despite initially enjoying support from better-than-expected German industrial data, the Euro weakened over the course of Friday’s trade due to an improving market mood, which sapped sentiment towards the safer common currency.
GBP/EUR Forecast: UK Wage Data in Focus
Looking ahead for the Pound Sterling, a series of impactful data releases are due for publication. Firstly, the latest batch of UK wage data is due to print on Tuesday.
Economists forecast that average earnings excluding bonuses will have remained unchanged at 6.2% in the three months leading to January. If this prints in line with forecasts, the Pound could strengthen as this is considered a key inflationary pressure by the Bank of England.
Furthermore, if January’s unemployment rate remained at 3.8% as forecast, GBP could further rise as it would indicate robust levels of employment in the UK.
This is followed on Wednesday by the latest UK GDP data, reflecting economic growth in January. On a monthly basis, the UK’s economy is forecast to have expanded by 0.2%, which could lift GBP exchange rates by showing improving economic activity.
However, the three-month average is forecast to be a contraction of 0.1%, which may temper any of Sterling’s gains.
For the Euro, meanwhile, the week is due to see little in the way of impactful data releases. Because of this, the predominant driver of movement for the common currency is likely to be adjustment of European Central Bank interest rate cut bets.
If these are postponed, then the Euro could gain ground against its peers. Elsewhere, risk appetite is likely to play a role in shaping EUR’s movement.
As a safer currency, the Euro may gain ground over riskier peers if the market mood worsens during the week’s session.
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