The Pound to Euro (GBP/EUR) exchange rate faced some notable pressures last week, following the news that England and Scotland would be going back into lockdown.
What’s Been Happening: Lockdown Blues Weigh on Sterling
The Pound stumbled out of the gates last week, falling sharply against the Euro and the majority of its other peers as a worrying surge in UK coronavirus cases forced Boris Johnson to impose a strict new lockdown in England.
Adding to the pressure on Sterling through the first half of the week were warnings from Johnson and his minister that the lockdown could remain in place through to March, depending on the success of the government’s ambitious vaccination programme.
However, Sterling sentiment began to improve in the latter half of the week after it was announced the military would assist in the logistics of the vaccination programme and that the Moderna vaccine had been approved for use in the UK.
Meanwhile, broad weakness in the US Dollar helped to propel the Euro higher at the start of last week, due to the negative correlation in the pairing.
But the single currency was forced to relinquish some of these gains later in the session amidst a rebound in USD as well as some lacklustre EUR data releases.
Three Things to Watch Out for This Week
1. Coronavirus Developments
With UK coronavirus cases continuing to climb at an alarming rate, the government has warned that stricter restrictions made be needed, any announcement of which is likely to pile more pressure on Sterling this week.
2. UK GDP
Also, in focus for GBP investors this week will be the UK’s latest GDP release, with the Pound likely to face some pressure as November’s monthly figures are expected to confirm that England’s previous lockdown resulted in a contraction of growth.
3. German Budget
Driving movement in the Euro this week will be the publication of Germany’s budget for the coming year, with EUR investors looking to Germany’s government to commit to massive fiscal stimulus in order to help the Eurozone’s largest economy recover from the pandemic.
Looking ahead, with the coronavirus front and centre once more, its likely we could see the GBP/EUR exchange rate infused with fresh volatility this week.