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Pound Sterling will likely remain under pressure against the Euro in the coming week.
Our Week Ahead Forecast model looks for an extension of the sell-off first to 1.1866 (Friday's low) and then the January low at 1.18, where more profound support will lie.
The Pound-to-Euro exchange rate trades below the nine-day exponential moving average (EMA), indicating the short-term price action (coming hours and days) is prone to further downside.
More significantly, the pair has broken below the 200-day EMA, which signals that the market is in a downtrend. Last week, we saw attempts at recovering above the 200-day EMA (1.1919) fail, confirming this area now forms a resistance that can cap advances.
GBP/EUR sold off on Friday after German politicians crossed a major hurdle in agreeing to an unprecedented spending package proposed by incoming Chancellor Freidrich Merz's spending revolution.
The deal is a major reason why big banks are currently upgrading forecasts for the EUR against the GBP and USD, judging that the German spending boost will lift the European economy.
"Game on again for the EUR as the German parties seem to have reached an agreement with the Greens on a debt package," says W. Brad Bechtel, Global Head of FX at Jefferies LLC.
In January, when the GBP/EUR sold off to 1.18, we saw weakness as being likely temporary as fundamentals had not shifted enough to warrant EUR outperformance against GBP.
However, the fundamental significance of the German spending revolution suggests this time might be different and that a rebound is not as likely as it was just two months ago.
"The euro is benefiting from higher long-term yields and hopes for massive investment programs . These could help to get the European (and especially the ailing German) economy back on track. After years of misery, this is finally a real glimmer of hope to stand up to the US dollar," says Birgit Henseler, an analyst at DZ Bank.
GBP Week Ahead
Thursday, March 20
? Average Weekly Earnings (Jan, 3m/12m YoY)
Inc. Bonuses: Expected: 5.8% | Previous: 6.0%
Ex. Bonuses: Expected: 5.9% | Previous: 5.9%
? Market Impact:
A stronger-than-expected reading could indicate wage-driven inflation, reducing rate cut expectations and supporting GBP.
A weaker reading may signal wage growth cooling, increasing BoE rate cut speculation, weakening GBP.
? ILO Unemployment Rate (Jan)
Expected: 4.5%
Previous: 4.4%
? Market Impact:
If unemployment rises above expectations, it could indicate labor market weakness, increasing pressure for BoE rate cuts, potentially weighing on GBP.
A stable or lower unemployment rate may support GBP by reinforcing economic resilience.
? Employment Change (3m/3m, Jan)
Expected: 95K
Previous: 107K
? Market Impact:
If employment figures exceed expectations, it suggests labour market strength, supporting GBP.
A weaker-than-expected print may indicate hiring slowdown, weakening GBP.
? Bank of England (BoE) Interest Rate Decision
Expected: 4.50% (unchanged)
Previous: 4.50%
? Market Impact:
If the BoE signals a cautious stance on rate cuts, it could support GBP.
If the BoE hints at earlier rate cuts, it may weaken GBP.
Friday, March 21
? GfK Consumer Confidence (Mar)
Expected: -21
Previous: -20
? Market Impact:
A higher reading (less negative) suggests improving consumer sentiment, potentially supporting GBP.
A lower reading could indicate consumer pessimism, weighing on GBP.
? Public Sector Net Borrowing (Feb)
Expected: £7.0bn
Previous: -£15.4bn
? Market Impact:
A higher-than-expected deficit may raise fiscal concerns, weakening GBP.
A better-than-expected print could support GBP by easing fiscal concerns.
Euro Week Ahead
Tuesday, March 18
? Germany ZEW Economic Sentiment (Mar)
Expected: 50.0
Previous: 26.0
? Market Impact:
A higher reading suggests improved investor confidence, which could support EUR.
A weaker reading may indicate continued economic uncertainty, pressuring EUR.
? Germany ZEW Current Situation (Mar)
Expected: -80.5
Previous: -88.5
? Market Impact:
A less negative print suggests stabilization in the German economy, which may support EUR.
A worse-than-expected figure would reinforce economic weakness, weighing on EUR.
Wednesday, March 19
? Eurozone CPI (Feb, Final YoY & MoM)
Expected: 0.5% MoM | 2.4% YoY
Previous: 0.5% MoM | 2.4% YoY
? Market Impact:
If CPI remains high, it could reduce expectations of ECB rate cuts, supporting EUR.
A lower-than-expected inflation print may increase rate cut bets, weakening EUR.
Thursday, March 20
? ECB President Lagarde Speaks at EU Parliament Hearing
? Market Impact:
Hawkish comments (concerns about inflation, delaying rate cuts) could boost EUR.
Dovish tone (focus on economic risks, openness to rate cuts) could weaken EUR.
Friday, March 21
? Eurozone Consumer Confidence (Mar, Preliminary)
Expected: -13.2
Previous: -13.6
? Market Impact:
An improvement in confidence could signal better consumer sentiment, supporting EUR.
A weaker print suggests economic pessimism, potentially weighing on EUR.