The Pound to Euro (GBP/EUR) exchange rate was met by volatility last week, as US political uncertainty dominated currency markets.
What’s Been Happening: Pound Undermined by Election Chaos
After a poor start to the week as markets reacted to the news that England would be re-entering lockdown, the Pound began to trend higher as political analysts overwhelmingly predicted Joe Biden would claim a clear victory in the US presidential election.
However, when this didn’t immediately come to pass due to a far closer-than-expected race, Sterling sentiment soured sharply.
This appeared driven by fears that a contested presidential election could delay a potential UK-US trade deal.
The Pound was able to claw back some of these losses in the second half of the week however, buoyed by the Bank of England’s (BoE) £150bn expansion to its quantitative easing programme.
The Euro, meanwhile, initially faced some pressure through the first half of the week due to growing concerns over Europe’s coronavirus resurgence, but then rallied in mid-week trade amid the fallout of the US election and some better-than-expected PMI figures.
But these gains proved short lived as disappointing German factory orders and Eurozone retail sales in September stoked concern over how Europe’s coronavirus resurgence has impacted consumer demand.
Three Things to Watch Out for This Week
1. Coronavirus Developments
With the drama of the US election finally over, its likely we will see the coronavirus pandemic return to the spotlight this week, potentially infusing further volatility into the currency market as the second wave of cases continues to spike at alarming levels.
2. Brexit Headlines
In focus for GBP investors this week will be the latest round of UK-EU Brexit talks. Will the sides be able to bridge the gaps in talks, or will a lack of progress sink the Pound?
3. UK GDP
Also influencing GBP exchange rates this week will be the UK’s latest GDP estimate. Economists are forecasting a strong rebound in growth in the third quarter, but given the UK now faces another contraction in Q4, any upside in Sterling may prove limited.
GBP/EUR Forecast
Looking ahead, it’s likely the GBP/EUR exchange rate will continue to trade in a wide range this week in the face of ongoing coronavirus and Brexit uncertainty.