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Euro to Pound Volatility Forecast for Next Week, Could Sterling Rebound?

Next week the direction taken by the Euro to Pound exchange rate will largely be dependent on UK employment and Eurozone inflation data.

Since the European Central Bank refrained from introducing additional stimulus and positively revised its growth forecasts for the Eurozone the Euro has had the upper hand in the pairing.

On Friday less-than-impressive UK trade data and a slowing in the nation’s construction output ensured that the Euro closed the week higher against the Pound, with Sterling still clinging to the key level of 1.20 Euros per Pound.

As the ECB intimated that inflation currently poses little threat to the Eurozone’s economic recovery at its latest policy meeting, investors will be paying close attention to the currency bloc’s consumer price index next week.

The Eurozone CPI declined by 1.1 per cent in January, month-on-month, keeping inflation well below the ECB’s target level.

If price pressures continue the central bank may be pushed into introducing a rate increase at its April meeting.

German/Eurozone economic sentiment reports will also have an impact on the Euro’s exchange rate during the first half of the week.

However, on Wednesday UK data will drive most of the movement in the GBP/EUR pairing.

UK employment figures and minutes from the Bank of England’s latest policy meeting will both be of interest.

Even if Tuesday’s Eurozone sentiment measures are upbeat, a strong UK employment gain could help the Pound recover losses against the Euro.

The most recent UK PMI reports indicated that employment in the manufacturing, construction and services sectors remained a plus point as the year continued, so the official employment report could surprise to the upside.

If this proves to be the case the Pound/Euro exchange rate could push higher over the course of next week, potentially rising above 1.20 Euros per Pound and perhaps even breaching 1.21 before Friday.

Eurozone reports to be aware of next week include Monday’s Eurozone CPI, Tuesday’s ZEW economic sentiment surveys and trade balance figures, Wednesday’s Eurozone construction output report, Thursday’s German producer price figures and Friday’s German current account data.

Of course the US Federal Open Market Committee policy announcement and Ukraine developments will also have an impact.

Euro (EUR) Exchange Rates

[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate , 
Euro,,US Dollar,1.3911,
Euro,,British Pound,0.8372,
Euro,,Australian Dollar,1.5409,
Euro,,New Zealand Dollar,1.6260,
Euro,,Canadian Dollar,1.5425,

As of 09:15 GMT