GBP/EUR Week Ahead Forecast: February GDP Poses Risk to Recovery 

• GBP/EUR near year's highs but with obstacles ahead
• Facing a trio of resistance at 1.1419, 1.1485 & 1.1495
• Supported at 1.1381 & 1.1322 as UK data risk looms
• Risks slide to or below 1.1322 if UK GDP disappoints

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The Pound to Euro exchange rate has held near this year's highs in recent trade and could make another attempt at recovering the 1.14 handle in the days ahead but this latest effort may also be frustrated without sufficient encouragement from February's UK GDP data.

Sterling was a middling performer among major currencies for the week to Tuesday after its recovery from 2023 lows against the Euro stalled for a second time since February last week following contact with a technical resistance level sitting up around 1.1419 on the charts.

The Pound has now failed in several attempts to recover above 1.14 and some are betting that economic data out this week will lead it to end the period back in the lower half of the year's range.

"Rates markets are optimistically priced for future BoE tightening (~40bp cumulatively) compared to our expectations," says Adam Cole, chief FX strategist at RBC Capital Markets.

"EUR/GBP has four times failed to break below 0.87 this year and having bounced just above that level last week, we position for a move back into the top half ofthe year’s range," he adds. (EUR/GBP 0.87 = GBP/EUR 1.15).

Above: Pound to Euro rate shown at daily intervals with Fibonacci retracements of December downtrend indicating possible areas of technical resistance for Sterling while selected moving averages denote possible support or resistance.

Cole suggested on Monday that RBC clients sell the Pound around 1.1401 and look for a move back to around 1.1185 this week, citing RBC economist forecasts that UK GDP data is likely to underwhelm the market consensus on Thursday due to industrial action in February.

The economist consensus suggests GDP likely rose by a further 0.1% in February after a 0.3% January expansion helped to substantially reverse the -0.5% contraction recorded for December.

Thursday's data could impact recently-increased market expectations for the Bank of England (BoE) Bank Rate and is bookended by speeches from Monetary Policy Committee members on Wednesday, Thursday and Friday.

"While the BoE remains wary of inflation persistence we expect the bank to hold rates at 4.25% next month, currently, 15bps are priced," writes Jeremy Stretch, head of FX strategy at CIBC Capital Markets, in Monday market commentary.

Above: Quantitative model-derived estimates of probable trading ranges for selected currency pairs this week. Source Pound Sterling Live. (If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.)

"The prospect of a paring in BoE rate expectations favours looking for EUR/GBP gains and a test of the 50Day MAV at 0.8832 [GBP/EUR: 1.1312} ahead of an eventual extension towards strong overhead resistance at 0.8929 [GBP/EUR: 1.1199]," he adds.

The BoE raised Bank Rate to 4.25% in March and prices in interest rate derivative markets have continued to suggest in recent weeks that there is a high chance of the benchmark being lifted to 4.5% or more in the months ahead.

Pricing of the Bank Rate outlook has remained stable in recent weeks even as markets revised expectations for other central banks lower following the March failure of Silicon Valley Bank, potentially helping to explain the Pound's outperformance of other currencies this last month.

Meanwhile, sentiment about the UK economic outlook has improved with a recent spate of better-than-expected data, although this would potentially enhance the Pound to Euro rate's susceptibility to any poorer-than-expected GDP data or 'dovish' commentary from BoE policymakers this week.

"Real money investors pared GBP shorts at the fastest pace since the end of December in the most recent positioning snapshot. The recent data uptrend, encouraging the position adjustment, has prompted the UK economic surprise index to recently test three-month highs," CIBC's Stretch says.

Above: Pound to Euro rate shown at weekly intervals with selected moving averages denoting possible technical support or resistance. (To optimise the timing of international payments you could consider setting a free FX rate alert here.)