Pound-to-Euro Rate Week Ahead Forecast: Volatility Ahead as UK Data Deluge, ECB Decision Loom

- GBP/EUR supported near 1.15 but choppy trade likely ahead.
- As data deluge looms inc CPI, PMI, jobs & retail sales figures.
- And ECB policy update sees EUR cooling heels until Thursday.

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• GBP/EUR market rate at publication: 1.1550
• Bank transfer rates (indicative): 1.1250-1.1330
• Specialist transfer rates (indicative): 1.1417-1.1470
• More about bank-beating exchange rates, here
• Set an exchange rate alert, here

The Pound-to-Euro exchange rate has risen from April lows but may face choppy conditions this week as Sterling and the single currency navigate an economic data deluge and European Central Bank (ECB) policy update.

Pound Sterling rallied from €1.1465 to €1.1550 on Friday, marking a second instance in which a dip below 1.15 has elicited a firm bid and swift recovery higher last week.

The Pound has fallen through much of April but would further stabilise this week if the Euro-Dollar rate happens to cool its heels ahead of Thursday’s all-important ECB policy decision.

Europe's single currency has already risen more than 2% against the Dollar and Pound thus far in April so could struggle to advance further in the absences of the ECB's blessing, which would support GBP/EUR as Sterling navigates a deluge of UK economic data.

"The UK data next week should give some meaningful support to GBP," says Petr Krpata, chief EMEA strategist for FX and interest rates at ING. "GBP now screens undervalued both vs USD and EUR on a short-term basis."

First on the UK calendar are unemployment figures on Tuesday although March inflation numbers and remarks from Bank of England Governor Andrew Bailey about “diversity in market intelligence” follow on Wednesday.

Above: Pound-Euro rate at daily intervals with Fibonacci retracements of mid-January move higher.

This is before the week culminates with the release of March retail sales numbers at 07:00 on Friday, which are followed by PMI surveys at 09:30 am the same morning.

“We expect the services PMI to tick up further to 58, slightly below the current Bloomberg consensus of 59.5. We believe the improvement in PMIs will be spread over the reopenings in May and June (as happened after the first lockdown) rather than immediately in April,” says Fabrice Montagné, an economist at Barclays.

The Pound may be sensitive to PMI disappointments in the latter given the extent to which its 2021 rally has been aided by expectations of sharp economic recovery later this year.

But before then the ECB will announce its latest policy update Thursday at 12:45 with a press conference led by President Christine Lagarde following 45 minutes later.

"Optimism on the outlook and firm signaling that the purchase pace will be relaxed again in H2 would help EUR sentiment further," says Paul Robson, head of G10 FX strategy EMEA at Natwest Markets.

"Positioning and shifting (negative) seasonals in May add to the risks around the event. We have thus decided to cut our short EUR/GBP (p/l +1.7%) and long GBP/CHF (+5.4%) positions," he adds.

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The ECB said in March it would carry out government bond purchases under its €1.85 trillion Pandemic Emergency Purchase Programme (PEPP) at a “significantly higher pace during the second quarter" to ward off unwelcome increases in borrowing costs for Eurozone governments.

Although, with European vaccination momentum expected to increase over the coming months, a less ‘dovish’ or even optimistic stance cannot be ruled out this week.

Above: Pound-Euro rate at weekly intervals with Euro-Dollar rate (orange).

That might vindicate apparent profit-taking by investors on first-quarter wagers against the Euro.

Earlier vaccination troubles and the UK’s quick off the blocks start with inoculations all helped to alter the path of least resistance in favour of a higher Pound-to-Euro rate last quarter, though in more recent trading investors have checked their pessimism on the single currency.

This isn’t necessarily an ongoing problem for Sterling as the GBP/EUR rate sometimes does well when the trade-weighted Euro looks for a breather, which is effectively what just happened, though Sterling would be likely to struggle toward the end of this week if Thursday’s ECB meeting gives the single currency homegrown reasons to cheer.

Though some strategists see that downside as likely to be limited and are still tipping Sterling for new highs against the single currency over the coming months.

“We have been consistent supporters of the long GBP view in 2021, and in fact at the end of March we nudged down our EURGBP target,” says Shahab Jalinoos, head of FX strategy at Credit Suisse, who tips GBP/EUR for a move to 1.19 in the months ahead.