GBP/EUR: Pound Heads Higher As EU To Mull Over Brexit Extension
  • Pound (GBP) extends gains versus the euro
  • UK is less exposed than Europe to Russia
  • Euro (EUR) falls as Russian invasion continues
  • German retail sales, EZ investor sentiment data due

The Pound Euro (GBP/EUR) exchange rate is rising on Monday, extending gains from last week. On Friday, the pair rose 0.36%, settling at €1.2102, after rising as high as €1.2153, the weekly high and a level last seen in June 2016.  At 05:45 UTC, GBP/EUR trades +0.31% at €1.2148. The pair gained 1.75% across the previous week.

While the Pound rose against the euro, it fell versus the US dollar last week as Ukraine developments drove risk sentiment. The overall mood in the market has been depressed, with risk-off trade dominating.

On Friday, data revealed that the UK construction sector activity gained momentum in February on the data front. The UK construction PMI rose to an eight-month high of 59.1, up from 56.3 in January. Rising labour and material costs continue to present headwinds, but last month didn’t slow activity.

Today there is no high impacting data. The UK economic calendar is relatively quiet this week until Friday’s GDP and industrial production figures.

The Euro tumbled last week as investors quickly sold out the common currency. Outside of Russia, countries in Europe stand to be hurt significantly by the sanctions imposed on Russia. This is due to the closer trade ties and Europe’s reliance on Russian energy.

The war will cause inflation to surge in Europe as energy prices shoot sky-high. Meanwhile, economic growth is set to slow. This puts the ECB in a challenging situation where it will need to navigate change versus inflation. The market is expecting the ECB to ignore inflation and stay supportive, explaining the drop in the euro.

Looking ahead, German retail sales will be in focus. Expectations are for sales to rise 1.5% month on month in January, after tumbling -5.5% in December as Omicron spread. In addition to Sentix investor confidence data, German factory orders will be under the spotlight.