Weekly Outlook: Euro Sinks amid European Coronavirus Resurgence, US-China Tensions Catapult the US Dollar Higher

GBP/EUR Exchange Rate: Pound Spikes on BoE’s Revised Forecasts

The Pound to Euro (GBP/EUR) exchange rate climbed to a four-week high over the past week, with the pairing seeing a notable spike in the wake of the Bank of England’s (BoE) latest rate decision.

This was driven by the BoE’s latest economic forecasts. GBP investors cheered as the bank revised its 2020 growth forecast up from -14% to -9.5%, predicting a less severe downturn but longer recovery.

GBP investors also welcomed the unanimous decision to leave interest rates on hold as this appeared to signal a cut to negative rates is not imminent.

While GBP/EUR has continued to climb through the first half of this week, any additional upside in the Pound could be capped by lingering Brexit concerns and recent flare ups in UK coronavirus cases.


GBP/USD Exchange Rate: Pound Soars to Four-Month High Against the US Dollar

The GBP/USD exchange rate dropped more recently this week, in part due to USD strength, but also driven by some lacklustre UK data.

The UK’s latest jobs report was up first, with a sharp fall in employment and first drop in regular wages since 2001 limiting the appeal of Sterling.

This was followed by the UK’s latest GDP release. A preliminary estimate reported that the UK economy contracted a record 20.4% in the second quarter, plunging the UK into its first recession in over a decade.

With UK Chancellor Rishi Sunak acknowledging the UK is now in ‘hard times’, we could see the GBP/USD exchange rate extend its losses in the coming days.


USD/GBP Exchange Rate: US Dollar Rebounds amid Souring Market Mood

The USD/GBP exchange rate rallied from a multi-month low over the past week as the safe-haven US Dollar’s appeal increased amidst a souring of market sentiment.

Rising tensions between the US and China initially triggered the risk-off mood. President Trump signed an executive order banning two popular Chinese apps from operating in the US as well as targeting sanctions against Hong Kong leader Carrie Lam.

Further weighing on the market mood is also the failure by Republicans and Democrats to reach a deal on the next round of US fiscal stimulus. Markets fear the continued impasse could hamper global recovery efforts.

However, the US Dollar’s rally has hit hurdles, with the latest US payroll releases raising concerns that employment growth is already decelerating.

Still to come this week is the publication of the latest US inflation and retail sales. With both economic indicators forecast to print positively in July, this could help the US Dollar to consolidate its recent gains.


EUR/USD Exchange Rate: Europe’s Deteriorating Coronavirus Situation Weighs on the Euro

The EUR/USD exchange rate has fallen back over the past week, largely in response to concerns over a coronavirus resurgence across Europe.

Spain and France have seen particularly worrying surges in new cases recently, with French Prime Minister Jean Castex warning the country is ‘going the wrong way’ in its fight against the coronavirus.

This has sapped EUR sentiment as fears of a second wave of infections in the Eurozone are denting hopes for a V-shaped recovery in the bloc.

The fears have also offset some positive data coming from Germany, with EUR investors shrugging off record high factory orders and industrial production in June, and another surge in economic sentiment this month.

Looking ahead, the Euro may continue to struggle going forward. Europe’s deteriorating coronavirus situation and confirmation of the Eurozone’s sharp slump in GDP in the second quarter are both likely to weigh on the single currency.

Matthew Andrews

Contact Matthew Andrews