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The GBP/EUR exchange rate remained mostly unchanged this week after the Bank of England raised interest rates to a 13 year high of 1.25%. The GBP/USD rate was also at the lowest we have seen since before the pandemic. We’re seeing lots of sterling weakness due to the ongoing cost-of-living crisis within the UK. UK inflation is expected to stabilise over the next couple of months even though it is still at record highs, however it is expected to reach new heights later in the year. We have CPI figures coming out from the Bank of England this Wednesday. CPI figures are used to measure inflation; if the figures come out higher than expected then this will show a high level of inflation which will encourage saving as consumer goods will be more expensive. However, if the figures come out lower than expected then this will show a decrease in the cost living and potentially boost the economy as people will be more encouraged to spend.
The GBP/EUR rate drop to lows we haven’t seen since September 2021. This could be because of the interest rate hike that will be taking place later on in the year. The ECB has said they will be hiking interest rates for the first time in 11 years. If the rates are hiked this will show they are trying to tackle inflation within Europe. Higher interest rates make borrowing from the banks more expensive which should encourage saving meaning we could expect to see a lot of volatility with the EUR in the coming weeks. Today President Lagarde will be releasing a speech from the ECB this could be regarding the rate hike later in the year. If the comments come out as positive from the speech, then we could see some EUR strength however if the comments come out as negative this could show a weakening economy and could possibly weaken the Euro.
Last week we saw more USD strength as conflict within Ukraine continues. We saw the Dollar dop to the lowest rate we have seen since March 2020. NATO officials have warned the war within Ukraine could last up for years – if this is the case then we could expect to see much more dollar strength as during times of crisis it is seen as a safe haven currency yet if there was an unlikely end to the war in the near future, we could expect to see some USD weakness as investors could look into other currencies. The Fed Chair Jerome Powell will be speaking to the US government regarding the growth of the economy. if the comments from the speech come out positive this could show a growing economy which would strengthen the Dollar but if the comments were to come out negative this could show the economy isn’t growing and then this could weaken the Dollar.
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