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Pound Euro (GBP/EUR) Exchange Rate Could Face Volatility This Week

Pound Coin on Euro Banknote GBP/EUR

Pound Euro (GBP/EUR) Exchange Rate Slips as PMI Growth Slows

The Pound Euro (GBP/EUR) exchange rate fell sharply this morning after the UK’s composite PMI for January unexpectedly dropped.

The single currency may find its gains limited, however, as the Eurozone PMI wasn’t much better. Private sector growth in both the UK and the Euro area slowed to 11-month lows.

Pound (GBP) Undermined by Political Turmoil?

The Pound (GBP) may remain on the back foot today. Although both currencies are affected by poor data, Sterling has the added headwind of the current bearish market mood. This is favouring the safe-haven Euro (EUR) over the riskier Pound.

The gloomy mood comes as worrying economic data, the Ukraine crisis and the prospect of higher interest rates sap investors’ appetite for risk.

Tomorrow we have the latest data from the Confederation of British Industry (CBI), which are expected to be broadly positive.

However, GBP investors may be more focused on UK politics this week. Sue Gray is due to hand over her report into government parties that may have broken lockdown laws. If the findings are unfavourable then Prime Minster Boris Johnson could face renewed pressure to resign. This would likely weigh on Sterling.

German Data to Dent the Euro (EUR)?

As for the Euro, the risk-off market mood could persist throughout much of the week, thereby supporting EUR.

Some high-impact data from Germany could also influence the single currency, with the results predicted to be negative overall.

First off, the Ifo business climate index for January is forecast to hold near a ten-month low. Economists then expect Germany’s GfK consumer confidence report for February to show another decline. And Friday brings Germany’s flash GDP growth rate, with Europe’s largest economy expected to have contracted by 0.3% in the fourth quarter of 2021.

In addition, this month’s economic sentiment report for the Eurozone is also due out of Friday. Market consensus expects investor morale to edge lower for the third consecutive month. However, the expected score is still relatively high.

Finally, we also have the Federal Reserve interest rate decision this week. As the Euro has a strong negative correlation with the US Dollar (USD), any USD movement triggered by the Fed decision will likely impact the single currency.

With plenty of high-impact events and uncertainty this week, the Pound Euro pair could face some volatility.

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