EUR/GBP increased sharply last week, driven by a sell-off in European fixed income linked to anticipated changes in German fiscal spending. This movement saw the currency pair trading close to the 0.84 mark.
Despite a bearish outlook on EUR/GBP due to a hawkish Bank of England and expectations of improved UK macro data, the potential for continued euro strength amidst high volatility could further elevate the cross in the near-term.
### Key Economic Events This Week
This week will focus on the UK’s monthly GDP estimate for January and updates on Germany’s fiscal spending plans, with a target for the cross set at 0.81 over the next 12 months.
Last week’s spike in EUR/GBP was largely a consequence of a sell-off in European fixed income markets, which itself was tied to shifting expectations around German fiscal policies. The move propelled the currency pair close to 0.84, catching the attention of traders assessing both momentum and broader macro trends.
A cautious stance on further euro gains is warranted, given the prevailing outlook for tighter monetary policy from the Bank of England and a potential rebound in UK economic data. That said, near-term conditions could still favour instability, keeping traders on alert for further spikes.
This week’s upcoming UK monthly GDP reading for January will be pivotal, particularly in assessing whether domestic economic conditions are beginning to justify a stronger pound. Meanwhile, developments regarding Germany’s fiscal policies will remain a key consideration, given their role in the recent market swings. The 12-month projection for the pair remains at 0.81, though any deviations from expected macro trends could prompt adjustments to this outlook.
### Market Factors To Watch
Market participants should be prepared for rapid shifts in sentiment, with particular attention to shifts in fixed income markets that might influence the broader direction of the exchange rate. Any fresh signals from policymakers—especially those affecting rate differentials—could add further complexity to the movements in the weeks ahead.
