The GBP EUR exchange rate was higher this week after stronger PMI figures and a European Central Bank announcement that was still reasonably dovish. The week ahead will have further data for traders to chew on with UK GDP, German inflation and employment numbers for Britain.
The GBP to EUR was trying to hold support at 1.1700 this week and this week’s data will determine the path ahead.
European Central Bank rate hike picture becomes clear
The European Central Bank finally signalled a rate hike for July, with potential for more action in September. The ECB released its latest inflation outlook for the eurozone which it expects will be 6.8% in 2022, before falling to 3.5% and 2.1%.
Despite the dovish approach from the ECB, money markets are predicting a more aggressive year-end for interest rates in the Eurozone. Traders have raised their bets to 145bps by year-end, compared to the previous 140bps.
ECB President Christine Lagarde said the decision was “not about catching up to the Federal Reserve,” but central banks have begun frenzied tightening since the Fed indicated its moves to tackle inflation.
Furthermore, Lagarde said that global energy prices are to “stay high in the near-term,” but there are headwinds to seeing oil back at previously normal levels.
The headline figure for this week for Europe will be German inflation, which is forecast to jump to 7.9% from 7.4%. A higher number could increase criticism of the ECB which is acting slower than other western central banks to tackle inflation.
The Northern Ireland protocol issue still looms and Irish Minister for Foreign Affairs, Simon Coveney urged the UK Government to pull back from plans to override the agreement. Coveney said that the EU has ‘hardened’ its stance on the issue in recent weeks after talking with European leaders.
OECD slashes previous growth forecasts
The world economy is on course to grow 3% this year, much lower than the 4.5% expected according to previous Organization for Economic Cooperation and Development (OECD) forecasts.
Growth will then slow further in the following year to 2.8%, down from a previous prediction of 3.2%, the group said.
“Global growth will be substantially lower with higher and more persistent inflation,” he said, adding the OECD was not forecasting a recession but downside risks loomed.
The UK has employment figures ahead this week and Boris Johnson was warning of a wage-price spiral if employees seek higher wages. That will not go down with many and rail workers are already planning strikes later this month over the current inflation picture.
The UK will also have GDP numbers ahead with traders looking for a change to last month’s 0.8% quarterly growth and 6.4% y-o-y numbers.
Former Conservative Chancellor Phillip Hammond has meanwhile said that Boris Johnson will not lead the party to another election.
“I can’t say whether he will be prime minister going into 2023 but I don’t think that he will lead the party into the next general election,” he said.
“I think a rebellion on this scale is very difficult to survive and I think he will find that his authority in the party ebbs away over the next few months.”
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