The Pound to Euro exchange rate remains flat so far this week as concerning signs of a second wave of the coronavirus offset growing signs of an economic rebound. Data also revealed a higher-than-expected jump in Germany’s Ifo Business Climate index in July, offering EUR some support.
What’s Been Happening: EUR Hits Highest Level Since March Against the Pound
The Euro hit a 20-month high against the US Dollar at the start of this week as traders reacted to EU leaders agreeing on a coronavirus recovery fund.
Early last week saw GBP/EUR slump as the Euro hit its highest level since March after the bloc’s leaders agreed on a massive recovery fund in a key sign of unity.
Meanwhile, Sterling struggled after the EU’s chief Brexit negotiator, Michel Barnier, revealed that London had not shown willingness to tackle the current deadlock.
However, the end of the week saw data reveal upbeat flash PMIs from across the Eurozone and Britain. The bloc’s data confirmed market expectations for a strong Q3 GDP rebound for the EU.
Three Things to Watch Out For This Week:
- German and Eurozone GDP
This week will see the release of both Germany’s GDP and growth data from the Eurozone as a whole. The single currency could suffer losses as data is expected to show that the bloc’s largest economy will post a significant contraction. The bloc is also expected to post a double-digit contraction.
The Euro could edge lower if the latest inflation data disappoints traders and core inflation falls further below the European Central Bank’s (ECB) target. This could leave the currency under pressure against the Pound at the end of this week’s session.
- Brexit Negotiations
Meanwhile, due to a lack of economic data for Britain, it is likely traders will continue to focus on Brexit as negotiations continue this week. If reports this week continue to highlight how unsuccessful talks have been, and the very real possibility of a no-deal scenario, it will weigh on Sterling sentiment.
However, reports emerged at the start of this week that the EU’s chief negotiator, Michel Barnier, had privately expressed confidence a deal with Britain would be possible, boosting Sterling.
Looking ahead, the GPB/EUR exchange rate could fluctuate as the Pound remains sensitive to headlines emerging from UK-EU Brexit negotiations, most recently GBP/EUR edged higher on positive comments from Michel Barnier.
Strong economic data could continue supporting the Pound to Euro exchange rate shown by last week’s private sector growth and retail data released this week. The Confederation of British Industry’s (CBI) distributive trade index surprisingly turned positive this month, rebounding to near pre-lockdown levels. This added to optimism over the UK’s economic recovery.