The Pound to Euro (GBP/EUR) exchange rate shot higher last week, after the Bank of England (BoE) poured colder water on negative interest rate speculation.
What’s Been Happening: Pound Soars as BoE Unconvinced by Negative Rates
The Pound initially got off to a slow start last week, amidst fears the UK government could tighten its lockdown measures in response to some worrying coronavirus figures.
However Sterling sentiment improved dramatically following a speech by BoE Governor Andrew Bailey, as he downplayed speculation the bank could slash interest rates below zero, suggesting that ‘there are a lot of issues’ with negative rates.
Meanwhile, the Euro struggled through last week’s session, being pressured through the first half by a stronger US Dollar (USD) as well as reports that Germany’s lockdown may be extended into April.
These losses then accelerated through the latter half of the week, after the minutes from the European Central Bank’s (ECB) December policy meeting, revealed members of the Governing Council are concerned by the risks that a stronger EUR exchange rate poses to the ECB’s efforts to bolster inflation.
Three Things to Watch Out for This Week
1. ECB Rate Decision
Likely acting as the main catalyst of movement for the Euro this week will be the ECB’s first policy meeting of 2021. Expect to see the single currency face some headwinds if policymakers continue to highlight their concerns over the recent appreciation of EUR exchange rates.
2. UK Coronavirus Developments
With the threat of tougher coronavirus measure still hanging over the UK, the Pound could face an uphill battle this week.
3. UK and Eurozone PMI
Also influencing the GBP/EUR exchange rate this week will be the publication of the latest PMI estimates from the UK and Eurozone. This may put pressure on both the Pound and Euro as January’s figures are expected to report a contraction in economic growth as a result of the lockdown measures in place in the UK and across Europe.
GBP/EUR Forecast
Looking ahead, the GBP/EUR exchange rate could be in for a bumpy ride this week amidst a slew of impactful data releases and ongoing coronavirus concerns.