The Pound to Euro exchange rate traded in a wide range last week, as the Bank of England’s (BoE) revised growth forecasts offered Sterling a temporary reprieve from a prevailing selling bias.
What’s Been Happening: BoE’s Growth Forecasts Offer Support to Sterling, Euro undermined by USD Strength
The Pound started poorly last week as GBP investors were unnerved by talk of a London lockdown and concerns that a recent deterioration in UK international relations could limit the UK’s post-Brexit trade opportunities.
However, Pound exchange rates attempted to mount a comeback in the latter half of the week, after the BoE revised its growth forecast for 2020 up from –14% to –9.5%, and appeared to play down the chances of negative interest rates.
But these gains didn’t last long, with the GBP/EUR exchange rate ultimately closing the week lower after Chancellor Rishi Sunak, downplayed hopes for a furlough extension.
Meanwhile, trade in the Euro was also mixed last week, with some initial weakness driven by the previous week’s poor GDP figures being reversed on the back of some positive PMI and retail sales figures.
The single currency remained volatile through the latter half of the week as well, as the Euro was undermined by a stronger US Dollar.
Three Things to Watch Out for This Week
1. UK GDP
Top of the agenda this week will be the publication of the UK’s latest GDP estimate. Expect this to result in a sharp sell-off of Sterling as economists predict the UK economy will have shrunk a startling 20% in the second quarter.
2. UK Jobs Report
Also influencing GBP exchange rates will be the UK’s June Jobs report, with a rise in unemployment and a sharp contraction in wage growth likely to reflect poorly on the Pound.
3. ZEW Economic Sentiment
For EUR investors the focus at the start of this week will be on the latest ZEW economic surveys. Will another improvement in Eurozone economic sentiment help to buoy the Euro?
Looking ahead, the GBP/EUR exchange rate looks set to face some significant headwinds this week as markets brace for some disappointing UK data releases.