The exchange rate for the British pound and the euro (GBP / EUR) rebounded late last week after hitting a two-week low on Tuesday.

The pound has suffered from the resumption of Brexit tensions between the UK and the EU over the Northern Ireland protocol as spirits rose on both sides.

However, the conciliatory comments of the and the bellicose expectations of the tipped the scales in favor of the pound.

British Pound (GBP) exchange rates bolstered by BoE’s hawkish comments

The British pound got off to a strong start after last week’s impressive retail sales figures and robust manufacturing and services PMIs.

However, further friction between the UK and the EU over the Irish Sea trade border started dragging the pound at the start of Monday’s session. With no hope of breaking the deadlock anytime soon, Brexit concerns continued to negatively impact the euro pound exchange rates over the week.

An increase in coronavirus cases has sent the pound down even lower, with the euro pound exchange rate hitting a two-week low on Tuesday of € 1.153, a cent lower than its early-in-the-week high.

The pound began to stabilize on Wednesday as coronavirus fears were offset by the government extending the vaccination schedule to 30 years.

After a difficult week for GBP investors, the pound received a much needed boost from BoE policymaker Gertjan Vlieghe. Vlieghe suggested that interest rates could start rising as early as the first quarter of 2022, depending on post-leave unemployment and economic growth. This allusion to a more hawkish stance by the BoE triggered a spike in the pound, causing the pound-euro exchange rate to rebound above € 1.16.

Euro (EUR) exchange rates undermined by profit taking and the ECB’s accommodative stance

The euro started the week on its back as comments from ECB President Christine Lagarde continued to weigh on the single currency after brushing aside speculation that the central bank would begin to consider cutting its debt program. purchase of bonds.

However, the euro’s exchange rates quickly received a boost after Germany’s latest Ifo Business Climate Index revealed morale hit a two-year high in May, which offset a revision to the unexpected drop in German GDP in the first quarter of -1.8%, from -1.7%. .

A prevailing risk-free mood, a stronger US dollar and profit-taking drove the single currency lower mid-week, due to the stronger appeal of USD safe havens and its negative correlation with the ‘euro.

The euro ended the week lower following more accommodating comments from an ECB policymaker.

Pablo Hernandez de Cos echoed Lagarde’s position, saying that “ the continued rise in inflation in the euro area is transitory ” after saying last month:

“We have to live with market-based increases in long-term inflation expectations to ensure that they translate into lower long-term real interest rates.”

France’s surprise fall into recession added to the losses in euros. Final first-quarter GDP data showed that the French economy contracted 0.1% in the first three months of the year, instead of the 0.4% growth initially reported.

The losses came despite the Eurozone economic sentiment reading reaching a three-year high, with confidence across the bloc improving on optimism about Europe’s economic recovery.

Short-term GBP / EUR forecast: data with strong impact on Eurozone to stimulate movement

A series of high impact Eurozone data releases will cause GBP / EUR exchange rates to move this week.

As rising inflation worries more and more investors around the world, forecasts for May of Germany’s inflation rate to rise to 2.4% from 1.6%, and an increase of 1 , 9% from 1.6% for the euro zone could lead to a significant movement of the GBP / EUR exchange rate.

Retail sales figures for April are expected to push down euro exchange rates, with a forecast of -0.5% contraction for the eurozone. In addition, a larger contraction of -2% is expected for the Eurozone’s largest economy, Germany.

However, some pressure on the euro could be relieved by the final Eurozone PMI data for May. Confirmation that the bloc’s service sector has experienced robust growth and that the manufacturing sector remains strong could limit the gains in the euro pound exchange rate.

Meanwhile, compared to the EU, the UK has no significant data releases except PMI data. The latest readings in May should confirm that growth in the services sector has reached its strongest pace since 2013, which could add gains to the GBP / EUR exchange rate.

The pound-to-euro exchange rate will remain sensitive to headlines about a possible disruption of UK lift lockdown conditions in June, which could be at risk if coronavirus cases continue to rise.