Pound-Euro Week Ahead Forecast: Global Market Tailwind Aids Rebound 

• GBP/EUR's attempted recovery may extend furthe
• Global market tailwinds driving GBP/EUR rebound
• Technical resistances could obstruct above 1.1450
• But 1.1290 & 1.1274 to offer support on weakness
• GDP data set to confirm UK recession; BoE eyed

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The Pound to Euro exchange rate appears to be drawing a line under its December decline and could have scope to reverse some of its recent losses this week if global markets remain on the front foot and Sterling is able to navigate risks lurking in the domestic appointment book without upset. 

Sterling had been trading below 1.13 and close to multi-month lows against the Euro when European inflation came in lower than was expected for December on Friday and just hours ahead of a U.S. job report in which wage growth surprised notably on the low side of market expectations.

The subsequent falls from U.S. government bond yields and resulting losses for the Dollar have been a balm for risky assets including currencies like the Pound, which now has open ground ahead on the charts against the Euro with little obstructing any further attempted recovery until up near 1.15.

"The GBP has a higher beta to risk and should continue to benefit from any further recovery of risk sentiment," writes Valentin Marinov, head of FX strategy at Credit Agricole CIB, in Thursday market commentary. 

"We continue to doubt that the GBP can recover meaningfully further vs the USD and EUR without any meaningful improvement of the UK data," he adds.

Above: Pound to Euro rate shown at hourly intervals alongside GBP/USD, EUR/USD and S&P 500 stock index futures. Click image for closer inspection. 

While the Pound might benefit if the Dollar softens further and global markets remain buoyant over the coming days, much also likely depends on how Sterling weathers the contents of Friday's UK GDP report for November.

"November's GDP data should leave little doubt that a recession has begun," writes Samuel Tombs, chief UK economist at Pantheon Macroeconomics, in a Monday research briefing. 

"But with the MPC already anticipating a deep downturn and currently placing more weight on wage and price developments, this report likely won't lead to a decisive decline in interest rate expectations," he adds.

Tombs forecasts a 0.2% fall in GDP that would all but assure a second consecutive contraction for the final quarter and the UK's entry into a recession that many forecasters expect will last the duration of the year or more, although the economist consensus favours a steeper 0.3% decline in GDP on Friday.

The Pound could be responsive to any positive or negative surprise but will also likely continue to benefit from technical supports around 1.1290 and 1.1274 in the event of any renewed weakness over the coming days. 

Above: Pound to Euro rate shown at daily intervals with Fibonacci retracements of late September recovery indicating possible areas of technical support for Sterling. Click image for closer inspection. If you are looking to protect or boost your international payment budget you could consider securing today's rate for use in the future, or set an order for your ideal rate when it is achieved, more information can be found here.

"We know that retail sales fell in November and that the composite PMI was firmly in contractionary territory, while this week's lending data suggested that housing activity slumped as mortgage affordability constraints continued to bite," says Andrew Goodwin, chief UK economist at Oxford Economics.

"Overall, we forecast that GDP fell by 0.1% m/m in November," he adds while writing in a Friday research briefing.

While Friday's GDP data is the highlight of the week, the market is also likely pay close attention to public remarks from the BoE's Governor Andrew Bailey, Huw Pill and Catherine Mann on Monday, Tuesday and Thursday.

Huw Pill and Catherine Mann are currently some of the most hawkish members of the Monetary Policy Committee and there is uncertainty over how much further Bank Rate is likely to be lifted in the months ahead

"The fact that the UK is already in a recession which, according to the BoE, could last all year suggests that GBP is likely to be sensitive to expectations that the BoE could turn dovish before either the ECB or the Fed," says Jane Foley, head of FX strategy at Rabobank. 

"We retain the view that EUR/GBP will creep to 0.90 on a 6 to 9 month view [GBP/EUR to 1.1111]," Foley writes in a forecast review last Wednesday. 

Above: Pound to Euro rate shown at daily intervals with selected moving averages and Fibonacci retracements of March 2022 and April 2022 declines indicating possible areas of technical resistance for Sterling. Click image for closer inspection. To optimise the timing of international payments you could consider setting a free FX rate alert here.