Euro Skyrockets as EU Agrees on Recovery Fund, US Dollar Tumbles on Coronavirus Vaccine Hopes

GBP/EUR Exchange Rate: Pound Slips from Highs on Brexit Uncertainty

The Pound to Euro (GBP/EUR) exchange rate has traded in a wide range over the past week, amidst a mixture of Brexit uncertainty, economic warnings and upbeat market sentiment.

Through the second half of last week this saw Sterling trend lower after Bank of England (BoE) Governor Andrew Bailey warned against hopes for a v-shaped recovery in the UK, pointing out so far the rebound has been uneven.

This gave way to a sharp rally in the GBP/EUR exchange rate at the start of this week as the Pound was propped up by more coronavirus vaccine optimism.

However, the Pound almost immediately relinquished these gains against a stronger Euro amidst renewed Brexit jitters.

Reports suggest the UK is close to abandoning any chances of a post-Brexit trade deal as the UK and EU remain deadlocked on a number of key issues.

Should these reports prove correct then it’s likely we could see some significant weakness in GBP exchange rates going forward.

GBP/USD Exchange Rate: Pound Rallies in Risk-On Trade

The GBP/USD exchange rate struck its best levels since early March over the past week as the pairing was turbocharged by upbeat market sentiment.

The Pound has become increasingly risk-sensitive in recent months, resulting in Sterling surging over the past week amidst burgeoning market optimism.

However, Sterling may struggle to consolidate these gains in the face of renewed Brexit anxiety.

Brexit uncertainty notwithstanding, there is potential for the GBP/USD exchange rate to test new highs through the latter half of this week on the back of the UK’s latest PMIs.

July’s preliminary figures are expected to show that the UK’s private sector finally returned to growth, bringing an end to four consecutive months of contraction.

USD/GBP Exchange Rate: US Dollar Characterised by Weakness

The USD/GBP exchange rate has come under significant selling pressure over the past week as a risk-on tone leads investors to shun the safe-haven US Dollar.

This exodus to risk-sensitive assets comes in response to more reports of positive progress towards a potential coronavirus vaccine, with hopes that it could be ready to go by the end of 2020.

Alongside the news that EU leaders reached an agreement on a coronavirus relief fund, investors are growing increasingly optimistic on the chances of a V-shaped recovery in global growth.

Looking ahead, there is the threat of additional pressure on the US Dollar as the US continues to wrestle with a worrying spike in coronavirus cases, while reports suggest the next round of fiscal stimulus faces a potential delay due to political wrangling between the Republicans and Democrats.

EUR/USD Exchange Rate: Euro Catapult to 18-Month High

The EUR/USD exchange rate continued to march higher over the past week, underpinned by a deal on an EU coronavirus recovery fund.

After a marathon four-day summit, EU leaders finally reached an accord on Tuesday, signing off on the European Commission’s ambitious plan for a €750bn relief fund.

While news of an agreement initially prompted some profit taking in the Euro, it didn’t take long for hopes for a speedy recovery in the Eurozone to drive the single currency to new highs.

Turning to the week ahead, it appears likely that the Euro will extend its recent rally, with Eurozone consumer confidence and PMI figures both forecast to highlight improving economic activity in July.

Matthew Andrews

Contact Matthew Andrews