GBP EUR Exchange Rate: The Week Ahead July 17 

The GBP EUR exchange rate rallied again this week after better-than-expected UK GDP figures. However, the pound sterling found resistance and tailed off into the weekend. The week ahead sees the European Central Bank meeting for July with an expected rate hike. On the same date, traders will see if a critical Russian pipeline comes back online from its maintenance shutdown. 

The GBP to EUR rallied to the 1.1900 level, and this week will determine if it can break above. 

A big week ahead for the European Central Bank

The week ahead will focus on the European Central Bank as its Governing Council meets on July 21. 

An interest rate hike looks likely, but the euro hit parity with the US dollar for the first time since its inception, which is another headache for the bank. Hiking rates could stop the euro’s decline and fend off further inflation, but the economy could suffer. 

In an article this week, ING analysts wrote that “Europe’s recovery is cancelled”, predicting a recession. It observed that the European Central Bank faces “multiple dilemmas”, including the amount of its first interest rate rise on July 21. With the euro close to parity, ING said that “there’s a high risk that the ECB’s macro projections in September will show at least a stagnating economy in 2023.” These projections could push policymakers to front-load the hikes. 

Another problem for the euro on July 21 is whether the Nord Stream pipeline will return online. The gas line shut down for annual maintenance, and Shell’s CEO was among those saying that Russia could ‘weaponize’ the supply.  

Winter is likely to be “really tough”, with some countries faring better than others. However, everyone will face “a very significant escalation in energy prices,” Ben van Beurden said. 

Pound sterling will look to employment before the ECB

The pound sterling would likely rise if the ECB only raised rates by 25bps on Thursday. 

The UK economy will first see the latest employment figures. Economists will look for a gain on last month’s 177k jobs added and a lower unemployment rate than the 3.8% seen last month. A previous German unemployment number was higher due to Ukrainian refugees joining the workforce count, but it is unknown whether that will affect the UK. 

Bank of England Governor Andrew Bailey spoke of the marked deterioration of the UK’s economic outlook. Analysts said that the UK could underperform Europe, but the looming energy crisis for the bloc could have more significant implications. 

A Bank of England survey of mortgage lenders also said demand will grind to pre-pandemic lows as interest rates slow the appetite for housing. 

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