GBP/EUR Week Ahead: Back to Range Highs, But Watch Inflation Data

Image © Pound Sterling Live

The Pound to Euro exchange rate could see volatility this week - albeit within a constricted range - as we navigate the release of UK wage and inflation data.

Pound Sterling remains cocooned in its 2024 range against the Euro, but the odds favour a retest of the upper limits of the range near 1.1760 before any return to the early-April lows at 1.1640.

Short-term momentum signals have turned more positive since the European Central Bank's April policy update that prompted a recovery back above the 1.17 pivot area, which leaves us favouring further upside.

That said, gains are likely to be limited, as are any losses, as neither currency commands a fundamental advantage over the other.

Those with payment requirements should therefore consider any sizeable daily moves as offering short-term tactical opportunities and avoid interpreting them as the start of a new trend.

Above: GBP/EUR is cocooned in a tight range, forays out of the range should mean-revert. Track GBP/EUR with your own custom rate alerts. Set Up Here

Look for volatility in Pound-Euro on Tuesday morning when the all-important UK wage figures for February are released. The Bank of England has been reticent to cut interest rates for fear wages are running too high and propping up domestic inflation rates.

Should the figures undershoot expectations then the market will grow more comfortable with the idea of a June rate cut, which can result in Pound-Euro weakness.

Tuesday also sees a speech by Bank of England Governor Andrew Bailey, which will offer him the chance to address the issue of potential rate cuts at the Bank in the coming months.

There is no Bank of England decision due in April, making this a potentially important speech as it will serve as the link to the May meeting.

Any hint of increasing confidence that rates can be cut without stoking inflation will likely result in a softer Pound. Wednesday brings with it another Bailey appearance and that of fellow MPC member Haskel.

It will be Wednesday's all-important inflation releases from the UK that will form the week's FX focus: it goes without saying that any undershoot vs. expectations will weigh on the UK currency.

Any above-consensus reading (consensus = 2.9% y/y) would offer the Pound a boost as it would shift the balance of odds for the first rate cut from June to August, putting the Bank of England behind the ECB with regard to the start of the rate cutting cycle.

The week ends with the release of UK retail sales, which have, on a couple of occasions in the recent past, triggered greater GBP reactions than either inflation or wages.

According to an analysis from UniCredit Bank, retail sales volumes likely rose 0.6% m/m in March, boosted by the earlier timing of Easter, which likely lifted food sales.

"The British Retail Consortium reported that sales among its members (deflated by its shop price index) rose 2.2% yoy in March, up from -1.4% yoy in February. In contrast, the BDO High Street Sales Tracker (which is not adjusted for prices) posted a steeper fall in yoy terms. The UK consumer remains under pressure from high interest rates, exhausted savings buffers, and a deteriorating labour market," says UniCredit.