The Pound to Euro (GBP/EUR) exchange rate traded in a wide range last week as both the UK and Europe were met by a second wave of coronavirus infections.
Last Week: UK Coronavirus Restrictions Infuse Volatility into the Pound
The Pound was placed on the back foot through the first half of last week, with Markets spooked by the UK’s alarming rise in coronavirus infections and the announcement of new restrictions by the UK government.
GBP investors were particularly concerned by Boris Johnson’s warning that the new restrictions could be in place for up to six months and that stricter measures may be needed.
However Sterling subsequently rallied through the second half of the week, with GBP investors cheering Chancellor Rishi Sunak’s announcement of a new Jobs Support Scheme, which it’s hoped will help the UK to avoid an unemployment crisis this winter.
Meanwhile, Europe’s own coronavirus woes limited the upside in the Euro through the first half of last week as cases continued to spike across the continent.
The publication of the Eurozone’s latest PMI figures then drove a sharp drop in the single currency in the latter half of the week, as the bloc’s private sector came to a virtual standstill in September, feeding into fears the Eurozone’s economic recovery has stalled.
Three Things to Watch out for This Week
1. Coronavirus Developments
The GBP/EUR exchange rate is likely to remain highly sensitive to coronavirus developments this week, with soaring coronavirus cases in both the UK and Europe and the threat of new restrictions likely to infusing volatility into the pairing.
2. Brexit Headlines
Also acting as a key catalyst for the Pound this week will be the latest round of formal Brexit trade negotiations between the UK and EU. With time fast running out to find a deal, further deadlock will reflect poorly on Sterling.
3. Eurozone Inflation
On the data front, the spotlight will be on the Eurozone’s latest CPI figures this week. Will another month of deflationary pressure take a heavy toll on the Euro this week?
GBP/EUR Outlook
The GBP/EUR exchange rate looks to trade in a wide range again this week as coronavirus and Brexit uncertainty are likely to dominate trading sentiment.